Interim Reporting and Accounting Quality

35 Pages Posted: 20 Aug 2010

See all articles by Ulf Schiller

Ulf Schiller

University of Basel

Marcel de Vegt

affiliation not provided to SSRN

Date Written: August 19, 2010


We investigate the effect of interim reporting on accounting quality. We assume that the manager has a preference for a high stock price. The manager may bias accounting reports in each sub-period. We assume that the enforcement system ties sanctions to the detected gap between total reported earnings and total cash flows at the liquidation stage. We show that there are many circumstances where interim reporting does not improve accounting quality; sometimes interim reporting even reduces it. The result is driven by the fact that biasing reports in shorter intervals goes along with lower incremental sanctions at each reporting stage. However, if effective, the bias leads to the same manipulated stock price as does an analogous reporting bias for the longer period. The incentive for increased misreporting with interim reporting is present in multiple equilibria. If there is an earnings-inflating equilibrium, the above negative effect may be offset by improved timeliness. If there is an earnings-deflating equilibrium, interim reporting unambiguously reduces accounting quality.

JEL Classification: D80, M40

Suggested Citation

Schiller, Ulf and de Vegt, Marcel, Interim Reporting and Accounting Quality (August 19, 2010). Available at SSRN: or

Ulf Schiller (Contact Author)

University of Basel ( email )

Peter-Merian-Weg 6
Basel, 4002

Marcel De Vegt

affiliation not provided to SSRN ( email )

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