Reporting Frequency, Information Precision and Private Information Acquisition

Journal of Business Finance & Accounting, Forthcoming

48 Pages Posted: 27 Apr 2008 Last revised: 26 Oct 2009

See all articles by Rick Cuijpers

Rick Cuijpers

University of Maastricht - Department of Accounting and Information Management

Erik Peek

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

Multiple version iconThere are 2 versions of this paper

Date Written: July 31, 2009

Abstract

This study examines whether the choice between quarterly and semiannual reporting affects the precision of investors’ information and their private information acquisition activities. In the first part of this study, we show that a firm’s reporting frequency has no effect on the average precision of investors’ information. However, our analysis of announcement-period price variance and share turnover shows that an increase in reporting frequency does make interim and annual financial reports a more important component of investors’ information set, relative to other sources of information. In particular, the results of this analysis suggest that investors of semiannual reporters hold more precise pre-announcement information than investors of quarterly reporters. In the second part of our study, we test one explanation for this finding. We argue that an increase in a firm’s reporting frequency reduces investors’ incentives to acquire private information between consecutive announcement dates and, consequently, should reduce information asymmetry among investors, increase share liquidity, and stimulate trading. Consistent with this reasoning, we find that quarterly reporters have lower average bid-ask spreads and higher abnormal share turnover than semiannual reporters.

Keywords: reporting frequency, information precision, private information acquisition, information asymmetry

JEL Classification: M41, M43

Suggested Citation

Cuijpers, Rick and Peek, Erik, Reporting Frequency, Information Precision and Private Information Acquisition (July 31, 2009). Journal of Business Finance & Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1125321

Rick Cuijpers

University of Maastricht - Department of Accounting and Information Management ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Erik Peek (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Burg Oudlaan 50
Room T08-53
3062 PA Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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