Timeliness of corporate annual financial reporting in Greece

Abstract

This paper reports on the results of an empirical investigation of the factors that affect timely annual financial reporting practices by 95 non-financial, group companies listed on the Athens Stock Exchange. A descriptive analysis indicates that 92% of the companies reported early (relative to the 161-day regulatory deadline), 3% reported on the 161st day and 5% reported late. A multivariate regression analysis suggests that large companies, service companies and companies audited by the former Big-5 audit firms have shorter final reporting lead-time. Our tests provide strong empirical evidence to suggest, however, that companies in the construction sector, companies whose audit reports were qualified and companies that had a greater proportion of their equity shares directly and indirectly held by insiders do not promptly release their audited financial statements. No empirical evidence was found in support of the monitoring cost theory. Policy implications of the results for the regulatory agency of the stock market are suggested.

Acknowledgements

We appreciate the assistance provided by officers of the Athens Stock Exchange in data gathering. We thank Elizabeth Dietz, Gouranga Ganguli and Tejinder Sethi for their comments on an earlier draft of this paper. We also thank George Alifantis of Ernst & Young in Athens for responding to our inquires. Further, we thank the anonymous reviewers of the paper, the editor, Professor Kari Lukka, and the associate editor, Professor Markus Granlund, for their useful comments and encouragement during the review process.

Notes

1. International investors, who are known to have demand for quality financial information comparable to the levels in their home countries, own about 30% of the listed shares on the ASE.

2. There is no requirement for preliminary announcement or press release of earnings ahead of publication dates in Greece.

3. As noted by Owusu-Ansah (2000), the dividing line between what constitutes a company-specific factor and audit-related factor is not clear-cut as portrayed here. Certain company-specific factors, such as company size and gearing can also be classified as audit-related factors (see Simnett et al., 1995, p. 5).

4. It is a customary practice in Greece for auditors to make remarks in their audit reports in accordance with the Hellenic Auditing Standards and Professional Ethics (The Institute of Certified Auditors of Greece, 1999, p. 180). These remarks would be considered in the UK and USA as audit qualifications.

5. It is difficult for an individual to keep track of publication of dates of financial statements in Greece because there are numerous newspapers in circulation in the country. In view of this, the ASE keeps a record of the dates of first appearance of financial statements of listed companies in Greek newspapers. The ASE gave us access to this database, which we are grateful.

6. An anonymous reviewer drew our attention to the fact that this conventional measure of GEAR may not be appropriate in Greece, as some Greek companies use short-term debts to finance long-term assets. While this might be the case, we did not change our measurement, as the opinion of this reviewer is only anecdotal. Future research should look further into this issue.

7. Although the listed companies on the ASE are classified into 12 major sectors, for statistical purposes the 95 companies in our sample were broadly grouped into three categories: (i) service ([SERV] consisting of 35 companies), (ii) construction ([CONS] consisting of 20 companies) and (iii) manufacturing ([MANU] consisting of 40 companies). However, we included k − 1 dummy variables in equation (1), where k is the number of categories. Thus, to avoid the ‘dummy variable trap’ problem the MANU category is omitted to serve as a base (Gujarati, 1995, p. 504). The coefficients for the remaining categories (SERV and CONS) measure the extent to which they differ from this base.

8. A histogram of the raw data on the FRLT variable (i.e. the untransformed data on date of publication of annual reports), not shown here, shows that it is heavily peaked at both 51–60 days (head) and 141–160 days (tail).

9. This explanation is due to an anonymous reviewer. The interests of minority shareholders are now protected in Greece by the enactment of the Corporate Governance Act of 2002 but not during the year of the study, 1999.

10. Interviews conducted by the second author of this paper with auditors in Greece suggest that auditor–client accounting method choice negotiations occur regularly and delay completion of audit engagements. Such negotiations cover issues, such as the number of remarks, the content and the style of the qualification. Many of the auditors also expressed the view that a trade-off between their legal liability and their future re-appointment by client companies takes place when the issue of remarks is discussed.