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Abstract:
In some industries the financial-year-ends of member firms are clustered together whereas in others they are more widely dispersed. This study attempts to provide an explanation for this phenomenon. Recognizing that financial-year-ends are not just the time when firms disclose information but also the time when they acquire information (when books are closed), we frame this study in the larger economic context of determining the optimal timing of information acquisition and release. Prior studies have examined the frequency with which firms acquire costly information. We address a question that follows naturally: given that information is acquired only once every t operating periods, when during the t period should such an exercise take place? We also examine a related question: do competing firms have any incentive to share the information acquisition burden?

The results of our analysis indicate that firms' choice of their financial year-end may partially be driven by the degree of correlation between the firms' cost (and demand) parameters and the incentives to share the information acquisition burden. Duopolists that face random but permanent shocks to their linear cost (or demand) parameter every period, but who can collect information in only some of the periods, will choose identical year-ends (that which is dictated by the stochastic environment) unless their costs are very strongly correlated (almost close to 1). Only when their costs are highly correlated do the firms choose staggered year-ends. Whether year-ends are clustered or staggered are also shown to be a function of the differences in cost variances for the two firms.

Abstract:
In some industries firms schedule their disclosure at about the same time, usually around the end of the business cycle, whereas in others such disclosures are more dispersed over time. This paper examines a firm's choice of a fiscal year-end (and hence of disclosure timing) relative to the business cycle and to the timing chosen by other firms in the industry. We model a stochastic setting in which the periodic closing of books yields information that is relevant for subsequent managerial decisions. The results show that while it is business seasonality that is the primary determinant of reporting period choice, competitive forces in the form of information transfer effects and proprietary disclosure costs have the ability to make firms' fiscal years deviate from the business cycle. Such deviations are more likely when auto-correlation in firms' annual costs is low, when within-season variations in business conditions are low, when uncertainty is primarily about industry-wide rather than firm-specific factors, and/or when affordable opportunities exist for collecting information that the year-end closing of books typically provides. Further, if incumbent firms are already reporting at the end of the business season, newer firms may have a greater inclination to make a different choice. The results also offer a novel rationale for why the end of the business cycle is an attractive fiscal year-end. The desire to receive information at an opportune time, rather than the ease of collecting information or any other factors, makes the end of business cycle an attractive year-end in our setting.

Information Acquisition, Disclosure, Competition, Timing, Fiscal year-end

Abstract:
In some industries firms schedule their disclosure at about the same time, usually around the end of the business cycle, whereas in others such disclosures are more dispersed over time. This paper examines a firm s choice of a fiscal year-end (and hence of disclosure timing) relative to the business cycle and to the timing chosen by other firms in the industry. We model a stochastic setting in which the periodic closing of books yields information that is relevant for subsequent managerial decisions. The results show that while it is business seasonality that is the primary determinant of reporting period choice, competitive forces in the form of information transfer effects and proprietary disclosure costs have the ability to make firms' fiscal years deviate from the business cycle. Such deviations are more likely when auto-correlation in firms' annual costs is low, when within-season variations in business conditions are low, when uncertainty is primarily about industry-wide rather than firm-specific factors, and/or when affordable opportunities exist for collecting information that the year-end closing of books typically provides. Further, if incumbent firms are already reporting at the end of the business season, newer firms may have a greater inclination to make a different choice. The results also offer a novel rationale for why the end of the business cycle is an attractive fiscal year-end. The desire to receive information at an opportune time, rather than the ease of collecting information or any other factors, makes the end of business cycle an attractive year-end in our setting.

Information Acquisition, Disclosure, Competition, Timing, Fiscal year-end