How Frequent Financial Reporting Can Cause Managerial Short-Termism: An Analysis of the Costs and Benefits of Increasing Reporting Frequency

43 Pages Posted: 3 Jan 2013 Last revised: 23 Jan 2014

Frank Gigler

University of Minnesota - Carlson School of Management

Chandra Kanodia

University of Minnesota - Carlson School of Management

Haresh Sapra

University of Chicago - Booth School of Business

Raghu Venugopalan

University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2012

Abstract

We develop a cost-benefit tradeoff that provides new insights into the frequency with which firms should be required to report the results of their operations to the capital market. The benefit to increasing the frequency of financial reporting is that it causes market prices to better deter investments in negative net present value projects. The cost of increased frequency is that it increases the probability of inducing managerial short-termism. We analyze the tradeoff between these costs and benefits and develop conditions under which greater reporting frequency is desirable and conditions under which it is not.

Keywords: Transparency, Mandatory Financial Reporting, Frequency of Financial Reporting, Real Effects of Disclosure, Managerial Myopia

JEL Classification: D80, G30, M41

Suggested Citation

Gigler, Frank and Kanodia, Chandra and Sapra, Haresh and Venugopalan, Raghu, How Frequent Financial Reporting Can Cause Managerial Short-Termism: An Analysis of the Costs and Benefits of Increasing Reporting Frequency (December 1, 2012). Journal of Accounting Research, Forthcoming; Chicago Booth Research Paper No. 13-01. Available at SSRN: https://ssrn.com/abstract=2196152 or http://dx.doi.org/10.2139/ssrn.2196152

Frank Gigler

University of Minnesota - Carlson School of Management ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States
612-624-7641 (Phone)

Chandra Kanodia

University of Minnesota - Carlson School of Management ( email )

321 19th Avenue South
674 Management and Economics
Minneapolis, MN 55455
United States
612-624-6880 (Phone)
612-626-7795 (Fax)

Haresh Sapra (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Raghu Venugopalan

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

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