The Dark Side of Low Financial Reporting Frequency: Investors’ Reliance on Alternative Sources of Earnings News and Excessive Information Spillovers

52 Pages Posted: 17 Aug 2019 Last revised: 10 Dec 2019

See all articles by Salman Arif

Salman Arif

University of Minnesota - Twin Cities - Carlson School of Management

Emmanuel T. De George

University of Miami

Date Written: August 16, 2018

Abstract

This paper examines how low financial reporting frequency affects investors’ reliance on alternative sources of earnings information. We find that the returns of semi-annual earnings announcers (i.e. low reporting frequency stocks, “LRF”) are almost twice as sensitive to the earnings announcement returns of US industry bellwether peers for non-reporting periods compared to reporting periods. Strikingly, these heightened spillovers are followed by return reversals when investors finally observe own-firm earnings at the subsequent semi-annual earnings announcement. This indicates that investors periodically overreact to peer-firm earnings news in the absence of own-firm earnings disclosures in interim periods. We also find elevated price volatility and trading volume around earnings announcements for non-reporting periods, consistent with theories of investor overconfidence. Collectively, our results suggest that investors are unable to successfully offset the information loss arising from low reporting frequency, thus impairing their ability to value firms and adversely affecting the quality of financial markets.

Keywords: Financial Reporting Frequency, Information Spillovers, Peer News, Bellwether Earnings News

JEL Classification: M41, M48, G14

Suggested Citation

Arif, Salman and De George, Emmanuel T., The Dark Side of Low Financial Reporting Frequency: Investors’ Reliance on Alternative Sources of Earnings News and Excessive Information Spillovers (August 16, 2018). Kelley School of Business Research Paper No. 17-7. Available at SSRN: https://ssrn.com/abstract=2900988 or http://dx.doi.org/10.2139/ssrn.2900988

Salman Arif

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://https://carlsonschool.umn.edu/faculty/salman-arif

Emmanuel T. De George (Contact Author)

University of Miami ( email )

Coral Gables, FL 33146-6531
United States
305-284-2273 (Phone)

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