Clustered Disclosures by Competing Firms: The Choice of Reporting Periods

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.

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

Working Paper Series