Joint Analysis of Corporate Decisions on Timing and Medium of Earnings Announcements: Evidence from Korea

ABSTRACT

This study comprehensively investigates the management’s strategic behaviors in determining the timing and the disclosure medium for earnings announcements, utilizing the empirical setting in Korea. This study finds that firms tend to release bad earnings news on a delayed basis, without voluntary disclosure of preliminary earnings, on Friday or weekdays just before a holiday and during after-market hours, respectively. More importantly, firms employ multiple earnings announcement strategies jointly in a way to increase the number of strategies to hide earnings news as the earnings performance deteriorates. Further, there is evidence that the earnings announcement strategies are generally effective in avoiding or attracting the market attention as anticipated. Overall, this study provides new evidence supporting the managerial opportunism in earnings announcements by demonstrating that firm managers deliberately organize multiple options for announcements to maximize the possibility of adjusting the market attention for their purposes.

KEYWORDS:

• Earnings announcement
• disclosure choice
• managerial opportunism
• market reaction
• timing and medium

JEL CLASSIFICATION:

• M41
• G30
• G14

Supplementary material

Supplemental data for this article can be accessed on the publisher’s website

Notes

1. In this paper, ‘earnings announcement’ means the first release of earnings information for the subject fiscal period including the preliminary earnings announcement and the filing of full financial statements.

2. Concerning the weekday choice, the announcements on Monday–Thursday before a holiday are treated identically to Friday announcements since both types of announcements are the same in that the market closes the very next day.

3. As Korean evidence, Kang and Jung (2017) report that the good news early, bad news late patterns are observed for Korean firms as well, and Kang and Do (2017) found a negative association between the delay of earnings announcements and the market response to the announcements.

4. The requirement for the December year-end is applied considering that almost all Korean listed companies have a fiscal year ending on December 31, and there might be a systematic difference in the earnings announcement behaviors across firms with different year-ends.

5. Here, it can be qualitatively comparable to the earnings announcement through press releases in the U.S.

6. i.e., 30% (15% for a large-size company with two trillion KRW or more total assets) of the revenue or the net profit for the previous year.

7. In 2011, the due date for FS filings for interim quarters was extended to 60 calendar days from the quarter end for certain qualified companies that report consolidated financial statements.

8. Normally, in the case of the fourth quarter (or annual) report, the FS information is released first by the disclosure of a ‘notice of annual shareholders’ meeting for approval of financial statements’, followed by the formal FS filing around a week later.

9. For example, the market reactions to late earnings announcements are smaller than those to timely or accelerated announcements (Bagnoli, Kross, and Watts 2002; DeFond, Hung, and Trezevant 2007; Kross and Schroeder 1984; Landsman, Maydew, and Thornock 2012); DellaVigna and Pollet (2009) report that the market is relatively inattentive on Fridays, whereas deHaan, Shevlin, and Thornock (2015) and Michaely, Rubin, and Vedrashko (2016) find no relevant evidence; deHaan, Shevlin, and Thornock (2015) indicates that market is less attentive to evening announcements, whereas Doyle and Magilke (2009) document that ERCs on the earnings announcements after market closure are not relatively low; No substantial research interest has been paid to the market consequences of the disclosure medium choice with the exception of Amir and Livnat (2005).

10. The daily abnormal stock return equals the firm’s actual return during the event window minus the expected return that is computed using the market model estimates for the pre-announcement period of [−40, −11] at the firm level.

11. In cases where the announcement is made during hours after the market closes, the next trading day is regarded as the event day of t= 0 for the purposes of calculating the abnormal stock return, consistent with Baik, Kim, and Lee (2012).

12. The trading volume is computed by dividing the number of shares traded during the respective period by the number of outstanding shares.

13. This study does not employ analysts’ forecasts to calculate earnings surprises since the analyst followings in Korea is concentrated on a small number of major firms in the financial markets, and therefore using analyst’s forecasts would reduce and bias the sample pools significantly.