The Effect of Fiscal Years on Revenue Innovation Persistence

Abstract

This study examines the importance of firm planning and control activities organized around the fiscal year in the revenue generation and reporting process. Consistent with planning and control influencing performance, quarterly revenue innovations display significantly higher autocorrelation when quarters are from the same fiscal year than when quarters are from different fiscal years (differential persistence). Differential persistence is higher for firms where planning and control is likely to be greater (measured by number of employees) and for firms making changes to the revenue process (measured by change in the ratio of accounts receivable to revenue). In addition, changes to the revenue process more closely correspond to fiscal years as the level of planning and control increases. Although differential persistence is predictable, both post-earnings announcement drift and analyst forecast errors vary with fiscal quarter and revenue information, suggesting that investors and analysts do not fully incorporate differential persistence into their decision-making.