The timeliness of 10‐K filings, financial performance, and stock returns

• Published date: 01 January 2024
• Author: Li (Lily) Z. Brooks,Yun Cheng,Linxiao Liu,Michael D. Yu
• Date: 01 January 2024
• DOI: http://doi.org/10.1002/jcaf.22665

Received:  August  Accepted:  September 

DOI: ./jcaf.

RESEARCH ARTICLE

The timeliness of 10-K filings, financial performance, and

stock returns

Li (Lily) Z. Brooks1Yun Cheng2Linxiao Liu2Michael D. Yu3

Division of International Banking and

Finance Studies, A.R. Sanchez, Jr. School

of Business, TexasA &M International

University, Laredo, Texas,USA

Richards College of Business, University

of West Georgia, Carrollton, Georgia, USA

University of West Georgia, Carrollton,

Georgia, USA

Correspondence

Michael D. Yu,University of West

Georgia, Carrollton, GA, USA.

Email: myu@westga.edu

We thank workshop participants at the

University of West Georgia for their

helpful comments and suggestions. Any

remaining errors are our sole

responsibility.

Abstract

Using a dataset constructed from the EDGAR database, this study investigates

whether the timing of filing -Ks contains useful information to investors. We

argue and find that firms with better earnings news are more likely to file their

-Ks early. We further show that firms experience earnings increase would

accelerate the filing of their -Ks. We explore whether the timeliness measure

is useful for predicting future financial performance and stock returns. We find

that firms filing -Ks early in the current year are more likelyto have better earn-

ings and higher stock returns in future years. Our results are robust to different

measures of timeliness, before and after the statutory filing deadline changes,

and subsamples of firms with large or small market capitalization.

KEYWORDS

accelerated filers, annual report, EDGAR, Form -K, financial disclosure, fundamental

analysis, SEC filings, timeliness

1 INTRODUCTION

Investor responses to the information content in -Ks and

-Qs are well documented in prior studies (Asthana &

Balsam, ; Asthana et al., ; Balsam et al., ;

Callen et al., ; Doyle & Magilke, ; Foster & Vick-

rey, ;Griffin,;Qietal.,; Wilson, ;You

&Zhang,). The general conclusion is that the infor-

mation in -Ks and -Qs is value-relevant to investors.

However, whether the timing of filing -Ks and -Qs

contains useful information to investors has not been suf-

ficiently analyzed, although firm characteristics associated

with the timing of filing -Ks have been documented

in prior studies. Consequently, the purpose of this study

is to investigate why some firms voluntarily choose to

file -Ks early while others choose to file -Ks close to

or after the filing deadlines. We further explore whether

the timing of filing -Ks contains useful information

about a firm’s future financial performance and stock

returns.

-Ks and -Qs are probably the most comprehensive

financial documents disclosed by public companies in the

United States. If -Ks and -Qs contain value-relevant

information to investors, then arguably the timing of filing

these forms must be also important to the public. Recog-

nizing the importance of timely filing -Ks and -Qs,

the SEC (The Securities and Exchange Commission) short-

ened the filing deadlines for both Form -K and Form

-Q in  and . However, the empirical evidence

so far is mixed. Some studies argue that the timing of filing

-Ks and -Qs is unlikely to convey useful information to

investors because firms tend to file these reports around fil-

ing deadlines regardless of whether the content is positive

or negative (Easton & Zmijewski, ). By contrast, other

studies argue that firms do not always file around the filing

deadlines. These studies show that a significant number of

firms file -Ks after the filing deadlines and an increasing

number of firms voluntarily file -Ks before the statutory

deadlines (Alford et al., ; Brooks et al., ; Impink

et al., ). A few studies also argue that early filers and

J Corp Account Finance. ;:–. ©  Wiley Periodicals LLC. 277wileyonlinelibrary.com/journal/jcaf

278 BROOKS  .

late filers are not random samples and have distinct firm

characteristics which are also different from those of firms

that file around the filing deadlines (Choudhary et al., ;

Brooks et al., ).

We use the number of days between a company’s fis-

cal year end date and its -K filing date as our basic

measure of timeliness. As COMPUSTAT does not report

a company’s exact fiscal year end date and its filing dates

are highly unreliable,we construct a new dataset from

the SEC’s EDGAR database (the Electronic Data Gather-

ing, Analysis, and Retrieval system). Our initial sample

includes the entire body of -Ks filed on EDGAR between

 and . We exclude filings before  due to

EDGAR technical errors and limited number of observa-

tions in early years. We first correct errors in the master

index files. We then correct filing errors and delete dupli-

cate observations. We programmatically extract the fiscal

year end date and filing date from the -K header section.

We notice that there are numerous filing errors associ-

ated with the fiscal year end date measure. To ensure that

we have the correct fiscal year end date, we extract an

alternative measure of fiscal year end date from the cover

page of the -K form. When these two dates are differ-

ent, we manually check the annual report and find the

correct fiscal year end date for early filers. Finally,we man-

ually verify all -Ks filed within  days after fiscal year

end.

Consistent with prior studies (Brooks et al., ;Easton

& Zmijewski, ), we find that firms are more likely to

file around the statutory filing deadlines and we document

four filing concentration areas: around the th, th,

th, and th day, respectively. We find that -K filings

become timelier over time. The number of early filers

consistently increases over our sample period and the

number of late filers monotonically decreases over time.

For instance, the percentage of firms that file within 

days increases from .% in  to.% in , and the

percentage of firms that file after  days decreases from

.% in  to .% in . Overall, our results show

that .% of firms in our sample file -Ks within 

days, while only .% of firms file -Ks after  days. Our

results further show that .% of firms file at least  days

before the statutory filing deadlines and .% of firms

file at least  days after the filing deadlines. These results

are consistent with those documented in Impink et al.

() and Choudhary et al. (). On Average, we find

that early filers are more likely to report positive earnings

and earnings increase. They are generally large firms, and

have larger market capitalization and total assets, higher

accounting rates of return and contemporaneous stock

returns, higher market to book ratio, lower cash flow

volatility, and have more business segments. By contrast,

late filers are normally small firms that are experiencing

deteriorating financial performance and have the opposite

firm characteristics.

The financial literature generally argues that companies

tend to release good news early and delay the disclo-

sure of bad news. This phenomenon is well-documented

in the earnings announcement literature in the United

States and Australia (Begley & Fischer, ; Chambers

&Penman,; Kross & Schroeder, ;Pastena&

Ronen, ; Patell & Wolfson, , Givoly & Palmon,

; Whittred, ). However, this hypothesis has not

been tested in the -K filing literature. Consistent with

prior studies, we hypothesize that firms with good finan-

cial performance would file annual reports early, while

firms with bad financial performance would delay their fil-

ings of annual reports. We further hypothesize that firms

with better-than-expected financial performance would

accelerate their filings of annual reports, while firms with

deteriorating financial performance would postpone their

filings of annual reports. Our empirical results are con-

sistent with our predictions across our sample period. We

conduct a battery of sensitivity analysis, and our results are

robust to different specifications of the timeliness measure,

subsamples of firms with large or small market capital-

ization, subsamples of early filers, and before and after

the filing deadline changes. We further argue that if man-

agers voluntarily file their annual reports early, then they

must feel good about their current financial results, and

these results are more likely to persist into future periods.

If the good information is not fully anticipated by the mar-

ket, we would also observe higher abnormal stock returns

associated with early filers in future periods. Consistent

with our hypothesis, we find that early filers are more

likely to report more persistent earnings and have higher

market-adjusted abnormal returns in future years.

When a company can file its annual report after fiscal

year end is determined by many factors. Closing books

and preparing annual reports, including financial state-

ments, MD&A, and footnotes, is a complex process.

Attorneys, actuaries, valuation specialists (e.g., pensions

and derivatives), audit committee members all have to

coordinate and work together in order to file on time. To

prepare a thorough filing, reports need to be reviewed by

the management, internal and external counsels, internal

accounting department, and the audit committee. They

also need to be reviewed by the full board for approval

and signature. Through a survey of retired Big Four audit

partners, Lambert et al. ()findthatfirmsthatareable

to report early are typically more established companies.

They have longer histories of reporting, more experienced

accounting staffs, better IT platforms, stronger internal

controls, more established boards, and more experienced

audit committees. All these factors are correlated with

firm characteristics associated with the timing of filing