Interim Reporting Frequency and the Mispricing of Accruals

This study examines the association between mandatory financial reporting frequency and the accrual anomaly. Based on regulatory changes in reporting frequency requirements in Taiwan, we divide our sample period into three reporting regimes: a semiannual reporting regime from 1982 to 1985, a quarter...

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Bibliographic Details
Published in:Accounting horizons 2018-09, Vol.32 (3), p.29-47
Main Authors: Tsao, Shou-Min, Lu, Hsueh-Tien, Keung, Edmund C.
Format: Article
Language:English
Subjects:
Accruals
Capital structure
Change agents
Disclosure
Dissemination
Financial reporting
Leadership
Managerial skills
Mandatory reporting
Prices
Risk factors
TEFRA 1982-US
Transaction costs
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Summary:This study examines the association between mandatory financial reporting frequency and the accrual anomaly. Based on regulatory changes in reporting frequency requirements in Taiwan, we divide our sample period into three reporting regimes: a semiannual reporting regime from 1982 to 1985, a quarterly reporting regime from 1986 to 1987, and a monthly reporting regime (both quarterly financial reports and monthly revenue disclosure) from 1988 to 1993. We find that although both switches (from the semiannual reporting regime to the quarterly reporting regime and from the quarterly reporting regime to the monthly reporting regime) hasten the dissemination of the information contained in annual accruals into stock prices and reduce annual accrual mispricing, the switch to monthly reporting has a lesser effect. Our results are robust to controlling for risk factors, transaction costs, and potential changes in accrual, cash flow persistence, and sample composition over time. These results imply that more frequent reporting is one possible mechanism to reduce accrual mispricing. JEL Classifications: G14; L51; M41; M48. Data Availability: Data are available from sources identified in the paper.
ISSN:0888-7993
1558-7975
DOI:10.2308/acch-52097