Opportunity Knocks But Once: Delayed Disclosure of Financial Items in Earnings Announcements and Analyst and Investor Neglect of Earnings News

Abstract:

We define the delayed disclosure ratio (DD) as the fraction of 10-Q/K financial statement items that are withheld at the earlier earnings announcement, and examine the relation between DD and how investors and analysts respond to earnings news. We predict and find that a higher DD is associated with a greater delay in investor (and analyst) response to earnings surprises. Specifically, when companies delay financial item disclosures until the 10-Q/K filing: (i) the fraction of total market reaction to earnings news realized around the earnings announcement (after the 10-Q/K filing) is on average smaller (greater); and (ii) analysts are more likely to defer issuing forecasts from immediately after the earnings announcement to after the 10-Q/K filing. Consistent with our limited attention model, the catchup associated with DD is incomplete even after the delayed items are fully disclosed at the 10-Q/K filing date and persists until the next earnings announcement date. Our findings suggest that the market tends to neglect earnings more when additional information that can help interpret earnings is not disclosed during the focal periods — earnings announcement periods — when investors and analysts are paying the most attention.