Disentangling the Effects of Reporting Frequency: Evidence from an Eye-Tracking Study

Abstract

In this paper, we analyse the effects of reporting frequency on the underlying mechanisms of forming earnings prediction and the investment behaviour of non-professional investors. Using a within-subjects eye-tracking experiment, we disentangle three separate reporting frequency effects---the effect of scaling (vertical axis), the effect of data points (horizontal axis), and the label effect. Taken together, our findings show that the increase of data points---when changing from yearly to quarterly reporting---significantly increases mental effort when processing earnings graphs and leads to a recency effect. In addition, adapting the scale and the label of the earnings graph (from yearly to quarterly) only have weak or no significant influence on mental effort. Still, they both lead to a primacy effect. These conflicting effects provide a potential explanation of the controversial findings of previous literature on the impact of reporting frequency. Our findings help to better understand the effect of reporting frequency of earnings and may help regulators to better derive implications regarding the timing or the frequency of earnings reports.

Keywords: Reporting frequency effects; earnings prediction; eye tracking

JEL Classification: D87; D91; G41; M41