Leader versus Lagger: How the Timing of Financial Reports Affects Information Quality and Investment Efficiency

Liu, Nanqin; Zhang, Xiao-Jun

doi:10.2139/ssrn.3579139

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Leader versus Lagger: How the Timing of Financial Reports Affects Information Quality and Investment Efficiency

52 Pages Posted: 13 May 2020 Last revised: 17 Jun 2021

See all articles by Nanqin Liu

Xiao-Jun Zhang

University of California, Berkeley; China Academy of Financial Research (CAFR)

Date Written: April 1, 2020

Abstract

This paper examines how the relative timing affects the quality of financial reports in a staggered reporting system. We show that the audit quality of the leader firm exceeds that of the lagger. Investment efficiency also differs systematically across firms depending on the relative reporting timing as well as the ownership structure of audit firms. Audit regulations mitigate misalignment of interests between auditors and investors, but also limit the effect of information spillover. We characterize optimal auditing standards and show, as regulatory tools, how and why imposing minimum audit quality requirements and adjusting auditors' legal liability complement and/or substitute. Overall, a staggered reporting system is shown to dominate a simultaneous reporting system in enhancing audit quality and investment efficiency through regulation.

Keywords: Financial Reporting Timing, Financial Externalities, Audit Quality, Investment Efficiency, Audit Regulation

JEL Classification: M41, M42

Suggested Citation: Suggested Citation

Liu, Nanqin and Zhang, Xiao-Jun, Leader versus Lagger: How the Timing of Financial Reports Affects Information Quality and Investment Efficiency (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3579139 or http://dx.doi.org/10.2139/ssrn.3579139