Earnings Management and Financial Reporting Timeliness

56 Pages Posted: 18 Jan 2017 Last revised: 15 Aug 2020

See all articles by Mark Kim

Mark Kim

University of California, Los Angeles

Spencer Pierce

Florida State University - College of Business

Ira Yeung

University of British Columbia (UBC) - Sauder School of Business

Date Written: August 1, 2020

Abstract

Prior studies find that delayed earnings announcements tend to communicate unfavorable news, and investors consequently react negatively when firms delay earnings announcements. However, these findings do not explain why investors discount delayed earnings, even after controlling for the earnings news, and why firms sometimes announce good news late. Motivated by theory from Trueman (1990) that attempts to explain these phenomena, we examine whether announcement delays indicate earnings management. We find that good news firms with higher discretionary accruals are more likely to announce earnings late. Consistent with post fiscal year-end activities driving announcement delays, we fail to find a relation between measures of real earnings management and late announcements. Using a last-chance earnings management measure based on tax expense manipulation, we find strong evidence that good news firms engaging in last-chance earnings management are more likely to delay earnings announcements. Consistent with Trueman’s (1990) theory that earnings management explains why investors discount delayed earnings announcements, we find that the negative relation between earnings announcement returns and announcement delays is partially driven by late announcers relying on last-chance earnings management to beat analysts’ expectations.

Keywords: Earnings calendar; announcement timing; earnings management; effective tax rate (ETR)

JEL Classification: G10, G11, G14, M40, M41

Suggested Citation

Kim, Mark and Pierce, Spencer and Yeung, Ira, Earnings Management and Financial Reporting Timeliness (August 1, 2020). Available at SSRN: https://ssrn.com/abstract=2900740 or http://dx.doi.org/10.2139/ssrn.2900740

Mark Kim

University of California, Los Angeles ( email )

110 Westwood Plaza D-415
Los Angeles, CA 90095-1481
United States
7738968565 (Phone)

HOME PAGE: http://www.anderson.ucla.edu/faculty-and-research/accounting/faculty/kim

Spencer Pierce

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

Ira Yeung (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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