Bank Monitoring Prevents Managerial Procrastination: Evidence from the Timing of Earnings Announcements

Abstract

I examine the role of bank monitoring in the timing of earnings announcements. Managers have been shown to procrastinate and delay the public release of bad news on earnings. I find that banks discipline and prevent such managerial procrastination of earnings disclosures to the public. Moreover, I find that the market is more tolerant of delays in the public release of earnings information in the presence of a bank lending relationship. Thus, the negative abnormal return accompanying late releases of earnings information is observed only when a bank lending relationship is not present.

Keywords:

• Bank monitoring
• Lending relationships
• Earnings announcements

Acknowledgement

This paper has benefited from helpful comments and suggestions from Linda Allen, Armen Hovakimian, seminar participants at Baruch College and University of St. Thomas, and conference participants at 2020 Academy of Economics & Finance annual conference, 2016 Financial Management Association annual conference, 2016 Eastern Finance Association annual conference, and 2016 Midwest Finance Association annual conference.

Notes

1 An alternative lending relationship measurement, Rel_dummy_5year, is defined to be one if the firm has syndicated loan transaction in the past five years (t-5, t-1) to proxy for the prior lending relationships, and zero otherwise. Related robustness test results are presented in Internet Appendix Table IA 5 and Table IA 6 (Supplementary materials).

2 For robustness test, I include the industry fixed effect into Equation (5) to predict Lags and define the Late_dummy_sic2 as an alternative Late_dummy measurement. The corresponding robustness test results can be found in Internet Appendix Table IA 1 (Supplementary materials).

3 Alternative Late dummy measurements with 3-day window (Delay_i,q >=3) and with 30-day window (Delay_i,q >=30) are also included for robustness tests and yield consistent results with the one with 7-day window measurement. Results are presented in Internet Appendix Table IA 2 and Table IA 3 (Supplementary materials).

4 Univariate logit regression results (the logit regression that includes only Rel_dummy variable as the only independent variable) are also provided in Internet Appendix Table IA 4 (Supplementary materials) to demonstrate the direct relationship between prior bank lending relationships and the likelihood of being late without other control variables.

5 Probit regressions are also conducted as robustness tests and yield consistent results with logit regression estimations. Results are available upon request.