Timeliness of financial reporting, the firm size effect, and stock price reactions to annual earnings announcements*

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 earningsâ€ disclosure 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 â€” firm size â€” 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 â€œbad news. â€ RA©sumA©. La publication rapide de l'information est un sujet de prA©occupation, puisque l'utilitA© d'un rapport risque d'Aatre inversement proportionnelle au dA©lai de publication. Bien que des dA©lais plus longs augmentent la probabilitA© que certaines des informations contenues dans la publication annuelle des bA©nA©fices aient dA©jA A©tA© obtenues de sources plus rapides, de prA©cA©dents travaux de recherche analysant la relation entre la rapiditA© de la publication des bA©nA©fices et l'intensitA© de la rA©action du marchA© A l'information publiA©e ont abouti A des rA©sultats mixtes. Ces rA©sultats non concluants peuvent Aatre au moins en partie attribuables A l'incidence d'une variable pouvant porter A confusion â€” celle de la taille de l'entreprise â€” susceptible d'avoir compensA© l'incidence du dA©lai de publication. Les entreprises de taille importante publient habituellement leurs bA©nA©fices assez tA´t, mais la rA©action du marchA© A cette information tend A Aatre mitigA©e, A cause de l'incidence de la taille. Les petites entreprises publient plus tard l'infonnation relative aux bA©nA©fices, mais la rA©action du marchA© A cette information a tendance A Aatre marquA©e, A cause de l'incidence de la taille. En consA©quence, les auteurs ont optA© dans la prA©sente A©tude pour une mA©thode A plusieurs variables permettant de contrA´ler la taille de l'entreprise dans l'analyse de la relation entre la rapiditA© de la publication des bA©nA©fices annuels et la rA©action du prix de Taction A cette information. Les rA©sultats de l'A©tude viennent confirmer l'hypothA¨se selon laquelle, lorsque la taille de l'entreprise n'influe pas, la longueur du dA©lai de publication est en relation inverse avec l'ampleur des rA©A©valuations de prix correspondant A la pA©riode de publication. En d'autres termes, des dA©lais plus longs sont associA©s aux rA©actions plus mitigA©es du marchA©, la taille de l'entreprise A©tant constante. Certaines informations dA©montrent que cette relation peut Aatre plus marquA©e pour la publication de bA©nA©fices qui vA©hiculent de Â« mauvaises nouvelles Â».