Does Late 10k Filing Impact Companies’ Financial Reporting Strategy? Evidence from Discretionary Accruals and Real Transaction Management

39 Pages Posted: 27 May 2020

See all articles by Santanu Mitra

Santanu Mitra

Wayne State University - School of Business Administration

Talal Al‐Hayale

University of Windsor

Mahmud Hossain

American University of Sharjah

Date Written: May/June 2019

Abstract

The study investigates how late 10K filers adapt their financial reporting strategy in the post‐late filing period in their response to bad publicity, negative market sentiment, and higher stakeholders’ scrutiny resulting from reporting delays. Both the level and change regressions show that late 10K filers significantly reduce the use of discretionary accruals from pre‐ to post‐late filing year. However, they simultaneously increase real transaction management over the same time period. The trade‐offs between the two earnings management techniques are more prominent when the late filers have a strong incentive to meet or beat earnings benchmarks. Our primary results are robust when late filings are caused by accounting, auditing, and internal control issues, and when the late filers cited no meaningful reason for late 10K filings. It is further evident that late filers with material internal control weaknesses and late filers that subsequently restate their financial statements make relatively higher trade‐offs than the matched non‐late filers. Finally, the trade‐offs between reduced accruals and increased real transaction management are stronger for the accelerated filers, and for the late filers audited by Big 4 auditors.

Keywords: auditor's scrutiny, big 4 auditors, discretionary accruals management, earnings benchmarks, financial restatements, internal control weaknesses, late 10K filing, professional community, real transaction management, trade‐offs

Suggested Citation

Mitra, Santanu and Al‐Hayale, Talal and Hossain, Mahmud, Does Late 10k Filing Impact Companies’ Financial Reporting Strategy? Evidence from Discretionary Accruals and Real Transaction Management (May/June 2019). Journal of Business Finance & Accounting, Vol. 46, Issue 5-6, pp. 569-607, 2019, Available at SSRN: https://ssrn.com/abstract=3604469 or http://dx.doi.org/10.1111/jbfa.12369

Santanu Mitra (Contact Author)

Wayne State University - School of Business Administration ( email )

Detroit, MI 48202
United States
313 577 9908 (Phone)
313 577 2000 (Fax)

Talal Al‐Hayale

University of Windsor

401 Sunset Avenue
Windsor, N9B 3P4
Canada

Mahmud Hossain

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

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