Timeliness of financial reporting, the firm size effect, and stock price reactions to annual earnings announcements*
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Abstract. Disclosure timeliness is of concern because a report's usefulness may be inversely related to the reporting delay. Although longer delays increase the likelihood that some of the information contained in annual earnings disclosures will be preempted by information from more timely sources, previous research investigating the relation between earningsdisclosure timeliness and the intensity of the associated market reaction has reported mixed results. These inconclusive findings may be at least partially due to the effects of a potentially confounding variable firm size which may have offset the reporting delay effect. Large firms usually disclose earnings relatively early, but the associated market reaction tends to be small due to the size effect. Small firms disclose later, but their associated market reaction tends to be high due to the size effect. Consequently, this study employs a multivariate approach, which controls for firm size, in investigating the relationship between the timeliness of annual earnings disclosure and the associated security price reaction. The study's results support the hypothesis that after controlling for firm size, the length of the reporting delay is inversely related to the magnitude of report period price revaluations. That is, longer delays are associated with smaller market reactions, when firm size is held constant. There is some evidence that this relation may be stronger for earnings announcements which convey bad news. Rsum. La publication rapide de l'information est un sujet de proccupation, puisque l'utilit d'un rapport risque d'tre inversement proportionnelle au dlai de publication. Bien que des dlais plus longs augmentent la probabilit que certaines des informations contenues dans la publication annuelle des bnfices aient dj t obtenues de sources plus rapides, de prcdents travaux de recherche analysant la relation entre la rapidit de la publication des bnfices et l'intensit de la raction du march l'information publie ont abouti des rsultats mixtes. Ces rsultats non concluants peuvent tre au moins en partie attribuables l'incidence d'une variable pouvant porter confusion celle de la taille de l'entreprise susceptible d'avoir compens l'incidence du dlai de publication. Les entreprises de taille importante publient habituellement leurs bnfices assez tt, mais la raction du march cette information tend tre mitige, cause de l'incidence de la taille. Les petites entreprises publient plus tard l'infonnation relative aux bnfices, mais la raction du march cette information a tendance tre marque, cause de l'incidence de la taille. En consquence, les auteurs ont opt dans la prsente tude pour une mthode plusieurs variables permettant de contrler la taille de l'entreprise dans l'analyse de la relation entre la rapidit de la publication des bnfices annuels et la raction du prix de Taction cette information. Les rsultats de l'tude viennent confirmer l'hypothse selon laquelle, lorsque la taille de l'entreprise n'influe pas, la longueur du dlai de publication est en relation inverse avec l'ampleur des rvaluations de prix correspondant la priode de publication. En d'autres termes, des dlais plus longs sont associs aux ractions plus mitiges du march, la taille de l'entreprise tant constante. Certaines informations dmontrent que cette relation peut tre plus marque pour la publication de bnfices qui vhiculent de mauvaises nouvelles . 1989 Canadian Academic Accounting Association
