When Can Quarterly Reports Resolve Uncertainty About Earnings? Evidence From ASC 606

50 Pages Posted: 27 Jul 2020

See all articles by Jesse Glaze

Jesse Glaze

University of Colorado at Boulder - Leeds School of Business

A. Nicole Skinner

University of Georgia - J.M. Tull School of Accounting

Andrew Stephan

University of Colorado at Boulder Leeds School of Business

Date Written: June 30, 2020

Abstract

We examine whether quarterly reports resolve uncertainty about how accruals map to cash flows and, correspondingly, how to price earnings. Although existing studies suggest quarterly reports released concurrently with earnings depress trading due to information overload, we predict that quarterly reports help investors price earnings news when they face uncertainty about how earnings map to future cash flows. We rely on the implementation of ASC 606 as a quasi-exogenous increase in uncertainty about how to price earnings. Specifically, we find that when uncertainty is high in the first quarter of ASC 606 implementation, 10-Qs released concurrently with earnings increase trading in response to earnings news. We find the relation is stronger when firms face greater uncertainty, and our results are supported by other accounting standard changes and broad, firm-quarter proxies for uncertainty. Our results suggest that quarterly reports are informative to investors when uncertainty about accounting information is especially high.

Keywords: Voluntary disclosure, mandatory disclosure, information uncertainty, accounting change, ASC 606, earnings announcements

JEL Classification: G14, M41

Suggested Citation

Glaze, Jesse and Skinner, Ashley Nicole and Stephan, Andrew, When Can Quarterly Reports Resolve Uncertainty About Earnings? Evidence From ASC 606 (June 30, 2020). Available at SSRN: https://ssrn.com/abstract=3639777 or http://dx.doi.org/10.2139/ssrn.3639777

Jesse Glaze

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Ashley Nicole Skinner (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

Andrew Stephan

University of Colorado at Boulder Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

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