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Reporting Frequency, Information Precision and Private Information Acquisition

Authors

  • Rick Cuijpers,

    1. The authors are from the Maastricht University School of Business and Economics. They thank seminar participants at Maastricht University, the University of Amsterdam and the Wharton School of the University of Pennsylvania, the editor and an anonymous referee for their comments and suggestions. Part of this paper was completed while Erik Peek was visiting the Wharton School of the University of Pennsylvania.
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  • Erik Peek

    Corresponding author
    1. The authors are from the Maastricht University School of Business and Economics. They thank seminar participants at Maastricht University, the University of Amsterdam and the Wharton School of the University of Pennsylvania, the editor and an anonymous referee for their comments and suggestions. Part of this paper was completed while Erik Peek was visiting the Wharton School of the University of Pennsylvania.
    Search for more papers by this author

* Address for correspondence: Erik Peek, Maastricht University School of Business and Economics, Department of Accounting & Information Management, P.O. Box 616, 6200 MD Maastricht, The Netherlands.
e-mail: e.peek@maastrichtuniversity.nl

Abstract

Abstract:  This study examines whether the choice between quarterly and semiannual reporting affects the precision of investors' information and their private information acquisition activities. In the first part of this study, we show that a firm's reporting frequency has no effect on the average precision of investors' information. However, our analysis of announcement-period price variance and share turnover shows that an increase in reporting frequency does make interim and annual financial reports a more important component of investors' information set, relative to other sources of information. In particular, the results of this analysis suggest that investors of semiannual reporters hold more precise pre-announcement information than investors of quarterly reporters. In the second part of our study, we test one explanation for this finding. We argue that an increase in a firm's reporting frequency reduces investors' incentives to acquire private information between consecutive announcement dates and, consequently, should reduce information asymmetry among investors, increase share liquidity, and stimulate trading. Consistent with this reasoning, we find that quarterly reporters have lower average bid-ask spreads and higher abnormal share turnover than semiannual reporters.

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