Does More Frequent Financial Reporting Bring the Future Forward?

Exploring mandatory financial reporting frequency changes in the US from 1954 to 1972, we find that a mandatory increase in reporting frequency is associated with an increase in firms’ future earnings response coefficients (FERC). This effect is stronger for firms with higher sales seasonality or operating in industries with lower earnings persistence and for firms that provide more voluntary disclosures of forward-looking information after the reporting frequency increase. We also find that investors increase (decrease) the weight on long-term (near-term) earnings when pricing the firm after the reporting frequency increase. Our findings suggest that more frequent mandatory reporting can enhance investors’ ability to predict future earnings by providing additional useful information on future earnings and by triggering more voluntary disclosures. Our study informs the ongoing policy debates on mandatory financial reporting frequency by highlighting the informational benefit of frequent financial reporting for investors.

Keywords: future earnings response coefficients (FERC); price informativeness; mandatory financial reporting frequency; seasonality

JEL Classification: G14; M41; M48

Suggested Citation: Suggested Citation

D'Adduzio, Jenna and Koo, David S. and Ramalingegowda, Santhosh and Yu, Yong, Does More Frequent Financial Reporting Bring the Future Forward? (April 21, 2023). Accounting Horizons (2024) 38 (2): 119–141, Available at SSRN: https://ssrn.com/abstract=4425928 or http://dx.doi.org/10.2139/ssrn.4425928