A Growing Disparity in Earnings Disclosure Mechanisms: The Rise of Concurrently Released Earnings Announcements and 10-Ks

Abstract

We document that the conventional disclosure practice of ‘stand-alone’ earnings announcements (EAs), which preempt 10-K filings, is steadily disappearing over time. Instead, firms are increasingly adopting the disclosure strategy of releasing the EA concurrently with the 10-K. We first examine the factors associated with firms’ adoption of concurrent EA/10-K disclosure and find that it is associated with greater impediments to producing timely and reliable earnings information, lower investor sophistication, and greater industry-level prevalence of concurrent EA/10-K reporting. We next examine the market implications of concurrent EA/10-Ks. We document that investors anticipate more of the information in concurrent EA/10-Ks, relative to stand-alone EAs, and that concurrent EA/10-Ks are more likely to be preempted by industry peer EAs. Further, the market reaction to concurrent EA/10 Ks is muted compared to stand-alone EAs even after controlling for the timing of the announcement. Our results suggest that the muted market reaction to concurrent EA/10-Ks is associated with the amount of information released, as the market reaction to concurrent EA/10-Ks is further dampened when the 10-K is longer. Concurrent EA/10 Ks are also associated with greater post-earnings-announcement drift compared to stand-alone EAs.

Keywords: Earnings Announcements; Disclosure; SEC Filings; Information Content; Timeliness; Concurrent Information