The Timeliness of Accounting Earnings as an Antecedent of Disclosure Informativeness of US Multinational Firms

Abstract

The objective of this paper is to investigate how disclosure informativeness of U.S. multinational corporations varies with the informativeness of numbers produced by their financial accounting systems. We predict that firms whose current accounting numbers do not capture well the effects of the firm's current activities and outcomes on shareholder value proxied by earnings timeliness will institute better disclosure systems and improve their disclosure informativeness to compensate for their less informative accounting numbers. Disclosure informativeness is measured by analyst ratings of corporate disclosures provided in the annual volumes of the Report of The Financial Analysts Federation Corporate Information Committee. The informativeness of accounting numbers is proxied by the timeliness of earnings. We investigate whether the analysts' ratings vary with the timeliness of earnings by examining the cross‐sectional relation between properties of earnings timeliness and subsequent analyst ratings of corporate disclosure of 100 firms included in FORBES' survey of the largest U.S. multinationals. The results support a significant negative relation between the timeliness metrics and subsequent values of disclosure informativeness after controlling for other firm characteristics.

Citation

Fekrat, M.A. (2002), "The Timeliness of Accounting Earnings as an Antecedent of Disclosure Informativeness of US Multinational Firms", Review of Accounting and Finance, Vol. 1 No. 2, pp. 57-70. https://doi.org/10.1108/eb026985