Did accelerated filing requirements and SOX Section 404 affect the timeliness of 10-K filings?

Abstract

This paper examines the effect of Sarbanes-Oxley provisions on 10-K filing delays. We find that tightened filing deadlines for accelerated and large accelerated filers are not associated with changes in the incidence of late filing. While Section 404 compliance does not affect filing timeliness for firms with effective internal controls, we find that about half the firms disclosing internal control weaknesses are late filers. As a consequence, many Section 404 material weakness firms experience negative abnormal returns around late filing notifications before filing the 10-K. Lastly, we find that market reactions to late filing notifications are more negative when management provides no meaningful explanation for the delay, consistent with managers' incentives to withhold bad news.

The timeliness of UK private company financial reporting: Regulatory and economic influences

“…Moreover, the reduction in the permitted filing time (NEWREG) led to a substantial increase in late filing. This is in sharp contrast to the recent study of Impink et al (2012) who report that, for US listed companies, a reduction in the permitted filing deadlines for 10-K reports did not result in an increase in the incidence of late filing. An explanation for this disparity is that, for quoted companies, the timely release of information is essential for the efficient operation of capital markets.…”

“…Although the model is statistically significant (F-statistic: 4.25, p= 0.01), only ΔSIZE and ΔLOSS have statistically significant coefficients, suggesting that firms moving into a loss situation took longer to file their accounts (see e.g. Impink et al, 2012), with those increasing in size filing more quickly, perhaps to signal potential growth. 27 We investigate the impact of SIZE in more detail in Section 5.4.…”

“…We therefore include firm leverage (LEV), calculated as the ratio of total debt to total assets, and whether the company is loss-making (LOSS), together with a liquidity (LIQ) ratio (current assets to current liabilities), which is expected to be negatively related to REPLAG. 17 We also employ the number of standard industrial classification codes (NOSIC) the firm operates in (additional to its primary SIC code), to control for firm complexity (Impink et al, 2012). The natural logarithm of firm age in years (AGE) is used to control for cumulative experience in preparing accounts and/or the maturity (efficiency) of accounting systems (Doyle et al, 2007) and, because, other things equal, firms with larger boards may have more resources available for the production of accounting information, we include the logarithm of the number of directors (NODIR).…”

“…They may also be disqualified from being a director, or action may be taken against them by their company, where they fail to adhere to legislation relating to the filing and content of company accounts (Green and Santilale, 2009). Of course, late filing may also lead to a loss of firms' (directors') reputation and may be a signal of financial distress (Impink et al, 2012), potentially affecting credit ratings 4 (e.g., Experian, 2013). The regulations and penalties for late filings are consistent with financial reporting timeliness being viewed (at least by regulators) as an important characteristic in the functioning of private capital markets.…”

The Timeliness of UK Private Company Financial Reporting: Regulatory and Economic Influences

“…Empirically, however, prior research shows that leverage acts more as a proxy for distress and tends to be negatively related to timeliness (e.g. Impink et al, 2012). 17 Following previous studies (e.g.…”