Early Earnings Releases and the Role of Accounting Quality

More than half of U.S. public companies announce earnings before audit completion. We examine how accounting quality, as a measure of the ex ante reliability of earnings, affects the decision to release earnings early. Using four proxies for accounting quality, we show that firms with higher account...

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Bibliographic Details
Published in:Auditing : a journal of practice and theory 2022-08, Vol.41 (3), p.175-203
Main Authors: Seavey, Scott E., Whitworth, James D., Imhof, Michael J.
Format: Article
Language:English
Subjects:
Accounting
Audit quality
Auditing
Demand
Earnings announcements
Earnings management
Public companies
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Summary:More than half of U.S. public companies announce earnings before audit completion. We examine how accounting quality, as a measure of the ex ante reliability of earnings, affects the decision to release earnings early. Using four proxies for accounting quality, we show that firms with higher accounting quality are more likely to release earnings before a completed audit, and that the association is stronger when market demand for timely earnings is high. We provide evidence that accounting quality remains important in the timing of earnings release even after controlling for other factors which affect earnings reliability, such as managerial ability, auditor tenure, and financial reporting problems in a prior period. Overall, we emphasize the role of accounting quality in the complex process of when to release earnings relative to audit completion and suggest that the importance of the audit in the earnings release decision varies based on firm-specific accounting quality. Data Availability: All data are publicly available from the sources identified in this paper. JEL Classifications: M40; M41; M42.
ISSN:0278-0380
1558-7991
DOI:10.2308/AJPT-17-127