y^^^»
HD28
.M414
ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
Extension and Violations of the Statutory
SEC Form 10-K Filing Requirements
by
Andrew W. Alford
Jennifer J. Jones
Mark E. Zmijewski
Working Paper No. 3461-92-EFA
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
Extension and Violations of the Statutory
SEC Form 10-K Filing Requirements
by
Andrew W. Alford
Jennifer J. Jones
Mark E. Zmijewski
Working Paper No. 3461-92-EFA
M.I T. UBP/^'-""'^
OCT 2 8 1992
RECElVtU
S
SEC Form 10-K
Extensions and Violations of the Statutory
Filing Requirements
Andrew W. Alford
Massachusetts Institute of Technology
Sloan School of Management
50 Memorial Drive
Cambridge,
MA
02139
AALFORD@SLOAN.MIT.EDU
Jennifer
J.
Jones
University of Chicago
Graduate School of Business
1101 East SS"" Street
Chicago, IL 60637
and
Mark
E. Zmijewski
University of Chicago
Graduate School of Business
1101 East 58'" Street
Chicago, IL 60637
August 1992
First draft:
December 1991
Abstract
In this study
SEC
we
present evidence that as
many
as 20 percent of the
10-K
filings are filed
with the
10-K
10-K report are not a random sample of firms;
up to 25 percent of the firms that are experiencing unfavorable economic events, and 10 percent of
the firms that are experiencing favorable economic events, delay their 10-K filing. On average, firms
after the 90-day statutory
reports,
we document
that delay their
10-K
due date. In addition
to the fact that not all firms file timely
that firms that delay filing their
filing
are small, have negative accounting rates of return, negative earnings
changes, low liquidity, and high financial leverage; these firms also experience negative market
adjusted stock returns during the fiscal year, the 90-day statutory filing period, and the delay period.
These
results suggest that verifying the
information
is
an important consideration
financial statement information to predict
bond
rating changes, mergers,
and stock
public availability of non-earnings financial statement
in the
experimental design of studies that use non-earnings
economic events such as audit opinions,
financial distress,
returns.
We received helpful comments from an anonymous referee. Randy Beatty, Harry Davis, Tom Stober,
at CUNY at Baruch, Indiana University, and Southern Methodist
thank Eden Stang for her help on this project.
and the workshop participants
University.
We
August
28,
1992
Page:
2
Introduction.
1.
The 1934
Securities
and Exchange Act requires every firm incorporated
with publicly traded securities to
file
a
Form 10-K with
Commission (SEC) within 90 calendar days of
widely
known and
and Exchange
the United States Securities
yearend.'
This 10-K
filing
United States
requirement
is
often cited as the foundation for the assumption that the last date a firm's annual
financial statement data
become
the case, however, that not
all
publicly available
The purpose of
this
is
90 days after
firms will be able to
procedures for a firm to notify the
extension.^
its fiscal
in the
SEC
study
is
of
to
its
meet
its fiscal
this filing
yearend.'
requirement.
inability to file a timely
document how frequently firms
10-K and
It is certainly
The SEC has
to request
an
either extend or violate
the 10-K filing requirements, and to describe the financial characteristics of these firms.
The
results
of this study have implications for the design of empirical tests that use non-earnings financial
statement data to predict economic events such as audit opinions, financial distress, bond rating
changes, mergers, and stock returns.*
Specifically,
we
we document
the 10-K filing behavior for a sample of 38,775 10-K filings,
describe the financial characteristics of this sample, partitioning the observations by the
of days between the 90-day statutory due date and the
The
results
^We use
show
that 20 percent of the
10-K
SEC
filings are
10-K receipt date
(i.e.,
and
number
the filing delay).
not filed by the statutory due date, and
the term "day" to refer to calendar days unless noted otherwise.
"For example, Holthausen and Larcker (1992,
p.
5) state,
"...
we assume
that the 68 ratios
can be
calculated for each firm three months after the fiscal yearend, since 10-K reports are due by that
time."
-Specifically, the
the
SEC
by
SEC
requires a firm that does not have the ability to
statutory filing
file
a timely
10-K
to notify
Form 12b-25, "Notification of Late Filing," within one business day after the 90-day
date. The initial Form 12b-25 filing typically provides the firm with an extension of
filing
the 90-day statutory filing requirement.
"See Watts and
Zimmerman
(1986) for a review of such studies.
Augusi
28.
1992
Page:
approximately eleven
percent of the 10-K
(six)
surprisingly, in spite of the
SEC's requirement that firms
inability to file a timely 10-K,
filing
date
file
a
Form
To examine
of 182 actual
its inability
Form
filings
are delayed by at least six (18) days;
SEC
notify the
fewer than one-half of the firms
10-K
filing a
(via
Form
the conditions under which firms delay their 10-K
12b-25
filings
from the SEC.
10-K and
if
after the 90-day statutory
We
filings,
we
document the reason stated by the firm
12b-25).
Our
however, are not experiencing financial
for
its
sample indicates that most
analysis of this
firms delay their 10-K filing because of reasons related to financial distress/
activities
collected a sample
the firm expected a significant change in the results of
Form
operations (required disclosures in
filings,
12b-25) of an
12b-25.
to file a timely
delayed 10-K
3
distress,
such as acquisitions or mergers that cause a delay in the 10-K
Some
firms with
but are involved in other
filing.
Consistent with the
majority of the firms experiencing financial distress, 31 percent of the firms stated that earnings for
the current fiscal period were expected to be significantly less than earnings in the previous period,
while only 10 percent stated that earnings for the current
fiscal
period were expected to be
significantly greater that earnings in the previous period.
The sample of Form 12b-25
a
random sample of firms.
First,
we
partition the
filings indicates that
We examine
had a delayed 10-K
and the one highest return
deciles.
many
To
sample of 38,775 10-K
filings in
two ways.
sample on the basis of market adjusted stock returns for the year immediately
following the statutory due date, and
partitions that
this issue for the
firms that delay their 10-K filings are not
decile,
filing.
we
calculate the proportion of the firms in each of ten
The
results reveal that the
two lowest stock return
have a higher proportion of delayed 10-K
filings
deciles,
than the other
the extent that extreme stock returns signal economic events, these results indicate that
firms that experience unfavorable economic events,
and some firms that experience favorable
^Lawrence (1983) documents financial reporting delays for bankrupt
firms.
August
Page:
1992
28.
economic events, delay
their
10-K
and the release of
filing
»
their non-earnings financial statement
data.
We
examine
also
performance across 10-K
measured by accounting
document
this issue
by comparing the accounting characteristics and stock market
delay panitions.
filing
document
that the excess stock returns of firms that
financial
performance of firms that
performance of firms that did not
New York
a
a
Form
Form
12b-25.
12b-25
we examine
that firms filing a
if
file
is
Form
a
reliably
We observe
also
filing
and the delay
12b-25 reveals that the
worse than the financial
these results for firms traded on
Automated Quotations system (NASDAQ).
the possibility that non-earnings financial statement data are released
(ARS), press
via alternative disclosures (e.g., annual report to shareholders
and,
We
Stock Exchange (NYSE), the American Stock Exchange (ASE), and the National
Association of Security Dealers
Finally,
file
filed
delay increases.
the 90-day statutory filing period,
Partitioning the sample into firms that filed/did not
period.
filing
10-K reports after the 90-day statutory
file
fiscal year,
that the financial performance (as
10-K
rates of return) deteriorates as the
date are reliably less than zero during the
the
We
10-K
they do, the
after the 90-day statutory filing period
ARS
is
typically filed after the 10-K.
tend not to
We
also
releases).
file
an
document,
We document
ARS with
the
SEC
for a sub-sample of
the firms, that firms that delay their 10-K filings do not issue a press release containing non-earnings
financial statement data; further,
by the date of the
the
SEC.
Form
12b-25
we were
filing for
able to ascertain
the financial statements were available
many of the 182 Form 12b-25
We document that the financial
filings that
we
collected from
statements are not typically available until after the 90-day
statutory filing period for this sample of firms.
filing
if
These
results suggest that
it is
unlikely that firms
a 10-K after the 90-day statutory filing date provide similar information to the public before
the firm
files its
10-K with the SEC.
Outline of the paper. In section 2
we
discuss the
SEC's
filing
requirements for 10-K reports
August
and
2S,
P»««:
1992
(Form
notifications of late filing
performance of firms that
file
We
a 10-K.
present our conclusions and implications for further
and
industrial firms that have registered securities
1934 Securities and Exchange Act and are required by Section 13 to
that have registered securities
file
The SEC considers
principal office in Washington. D.
statutory filing date for
if
SEC
If a firm
is
not able to
is
a
on
file its
file
form as
C; Rule 03 of
filings until
the statutory filing date
file
a
its
"filed"
on the date
is
Form 10-Q
90 days
received at the SEC's
it is
a Saturday, Sunday, or holiday.
10-K without "unreasonable
effort or expense,"
90-day statutory
filing date.*
if
the firm
to consider the 15
SEC by filing
The SEC considers
files
a timely
Unless the
and Form 8-K
Form
it
SEC notifies
filing
the
SEC
12b-25
10-K
Form 12b-25 and
day extension approved after
(quarterly financial reporting)
a
Rule 12b-25
a delayed
^Rule 12b-25 requires a "Notification of Late Filing" (Form 12b-25) for other
for example,
SEC within
and Exchange Act defers a
the 1934 Securities
after the original 90-day statutory filing date.'
to the contrary, the firm
the
the business day immediately following the statutory filing
to be filed by the statutory filing date (timely)
10-K within 15 days
periodic repons, and firms
Form 10-K with
of the 1934 Securities and Exchange Act requires the firm to notify the
within one business day of
under Section 12 of the
under the 1933 Securities and Exchange Act and are required by
periodic reports, are required to
after their fiscal yearend.
date
financial
and Stock Exchange Financial Reporting Requirements.
Filing
All commercial
Section 15(d) to
and present our
4.
SEC 10-K
2.
describe the sample
10-K and Form 12b-25 reporting behavior, as well as the
descriptive analysis of the
research in section
we
12b-25). In section 3
5
filing
files its
the firm
initial
Form
filings as well,
(current report of significant
events).
'In the early 1970s the
filing date.
Form
12b-25 provided a 30 day extension of the original 90-day statutory
August
28, 1992
Page:
beyond the
12b-25; however, firms must consider applications for extensions
unless the
SEC
Figure
filing
period
1
extension denied
issues a specific order granting the additional extension.
depicts the sequence of information events for this study.
The 90-day
statutory 10-K
the 90-day period after the fiscal yearend, although adjusting this period for
is
Saturdays, Sundays, and holidays can extend
day of the statutory
filing
to file a timely
10-K
90-day statutory
date and the
to notify
it
filing date; thus,
no more than one business day
Form
The SEC
We
filing period.
90-day statutory
a subsequent
initial
6
to 93 days.
The
statutory
define the delay period as the
SEC
by
it
10-K receipt date. The
filing a
we expect
Form 12b-25
that the initial
after, a firm's
SEC
10-K
filing
date
the last
is
number of days between
requires a firm that
is
the
not able
within one business day after the firm's
Form
90-day statutory
12b-25 would be filed close
filing date.
12b-25 for an additional extension, subsequent
Form
to,
but
Although firms can
file
12b-25
filings
are rare.*
takes a strong public position that timely information disclosures are important to
the securities markets:
The
disclosures required in reports filed with the
preservation of free,
fair
and informed
Commission are
securities markets. It
is
essential to the
of critical importance
that such reports be furnished within the time they are required to be filed
Commission's
rules.
under the
Only the most compelling and unexpected circumstances
justify
a delay in the filing of a report and the dissemination to the public of factual
information called for therein.'
Although the
SEC does not have
disclosure requirements, the
First, the
SEC
the authority to levy fines for a firm's failure to adhere to statutory
SEC
can enforce
its
statutory filing requirements in
numerous ways.
can prohibit a firm from issuing additional publicly traded securities (of any
type) by not approving the firm's registration statement because of the firm's failure to
required disclosures on a timely basis. Second, the
SEC
can institute a
civil
Form 12b-25
'Securities
filings.
and Exchange Act of 1934, Release No. 10707, March
its
injunctive action in the
*Our database contains only 67 observations with subsequent Form 12b-25
initial
file
29, 1974.
filings for
the 2,669
August
28,
1992
Page:
courts against the firm; a typical example
for
Permanent Injunction
Ener-Mark Corporation
in the
Notifications of Late Filing
it
to
file its
Ener-Mark Corporation. The SEC
United States
reports,
one Form 8-K
that
it
failed to file a
(relating
to
on Form 12b-25. Ener-Mark consented
delinquent reports, and enjoining
it
Complaint
filed a
Court for the District of Columbia against
District
Ener-Mark admitted
in 1990.'°
and 1989, four Form 10-Q
is
Form 10-K
for 1988
an auditor change), and 13
to the Final
Judgment ordering
from future disclosure violations of the provisions
SEC
of the 1934 Securities and Exchange Act. If the firm does not comply with this judgment, the
can
file
a Motion for Judgment of Civil Contempt and have the corporation and/or
for failure to
and
its
comply with the judgment. The
chief executive officer, William
firm's stock.
Howe and Schlarbaum
suspended trading
these suspensions
was the
all
Third, the
SEC
can suspend trading of the
They
indicate that the reason given by the
file
SEC
for
SEC
some of
required information with the SEC.
have financial reporting requirements which provide some
also
additional incentives for firms to
officers fined
such a motion against Unioil Corporation
filed
M. Mulderig."
firms' failure to
The stock exchanges
SEC
its
(1986) examine stock price changes of firms for which the
in the firms' stock.
make
timely financial disclosures.
The NYSE. ASE, and NASDAQ
have a general disclosure requirement that a firm must issue a timely press release for
significant events that could result in a significant
regarding the issuance of financial statements.
The
change
NYSE
delay in the issuance of a firm's financial statements.''
SEC
'°See,
v.
7
Ener-Mark Corporation,
Civil
in its stock price,
and
all
specific rules
even has specific rules pertaining to a
The
NYSE
requires firms to submit an
Action No. 90-1550-JHG, D.D.C., July
3,
1990,
LR-12532.
"See
SEC
v.
Unioil and William
M. Mulderig,
Civil
Action No. 88-2803 TPJ (D.D.C.),
SEC
Litigation Release No. 12641.
'-All three
Listed
exchanges discuss the financial disclosure requirements
Company Manual
(1992), Ihe
ASE Company
in their
Guide (1992), and the
manuals; see the
NASD
Manual
(1992).
NYSE
August
28. 1992
Page:
annual report to the exchange within three months after the
before the annual shareholders meeting.
reporting requirements,
it
shareholders meeting, and
is
the firm cannot
meet these
As
a result of the delay, the
NYSE may
delay the annual
confident that the audited financial statements will not differ
stock exchange enforcement actions result in economic costs to the firm.
Firms incur direct costs such as
SEC
if
financial statements currently available.
The above SEC and
signalling effect of
states that
requires the firm to issue a press release regarding the financial
it
statements as soon as the firm
from the
yearend, but at least 15 days
fiscal
should notify the NfYSE as soon as the firm becomes aware of its inability
to submit a timely annual report.
significantly
NYSE
The
litigation costs,
an untimely
filing are
financial reporting requirements.'^
but
it
may be
that indirect costs
from the potential
an even greater incentive for the firm to comply with the
The
fact that
some
firms
file
a 10-K after the 90-day
statutory filing period indicates that these firms cannot avoid (or choose to bear) these
costs,
and leads us
are not a
3.
8
to conjecture that firms that file a
random sample of
firms.
We
examine
this
10-K
economic
after the 90-day statutory filing period
conjecture in the remainder of this study.
Descriptive Analysis.
Our sample
developed
of 10-K and
at the University of
Form
12b-25
filings is
taken from the
Chicago. This database contains
on the NYSE, the ASE, and the
NASDAQ system
SEC
SEC
filing
filings for
date database
most firms traded
from the mid 1960s through the
first
few months
some indirect foundation given the
document a negative stock price reaction to firms that do not announce
earnings by the expected announcement date (see, for example, Kross (1981a, 1981b), Chambers and
Penman (1984), Kross and Schroeder (1984), Penman (1984), and Alford and Zmijewski (1992)).
"The
existence of indirect costs from a signalling effect has
results in studies that
August
Page:
28. 1992
of 1985/"
We
restrict
Form 12b-25
that
filings
contains the date the
document
into
its
our sample to 10-K
SEC
computer database
and 2,669 Form 12b-25
year), except that the database contains fewer
which have from one
changed
fiscal
(onfile date).
first
10-K
to eight
10-K
filings in
Depending on
filings.
Form 10-K and Form 12b-25
we present
filings;
indicate that the 10-K
measure the 90-day statutory
was
when
SEC
1985 (1,627 10-K
based
filings
per
filings) since
the
exists in the
42 percent of the firms
in the
sample
filings.
number of days
period (number
in the delay
date and the actual filing date); negative/0/positive
filing date.
We
first
business day on or after 90 days after the
fiscal
90-day statutory
date for Saturdays, Sundays, and holidays; thus, the 90-day
dates for
file
it
database for every year in
numerous SEC forms. It begins
information for a subset of firms and ends in
filing
and whether
a firm's fiscal yearend
filed before/on/after the
filing
SEC began collecting this
on the SEC Work Load History
the
filing
date as the
filing
yearend, which adjusts the statutory
^*This database contains
entered the
Filing Behavior.
the distribution of the
of days between the 90-day statutory
numbers
SEC
and 5.780 10-K
(representing 62 percent of the 10-K filings) have either seven or eight 10-K
1
The database
file.^'
part of 1985. This sample contains 7.887 unique firms in the sample
the sample period can have seven or eight 10-K
In Table
complete year
filings.^*
yearend during the sample period, a firm that
A.
first
A total of 38,775 10-K filings
are distributed evenly across years (between 4,952
database only covers the
the
received the document (receipt date) and the date the
criteria
The 10-K filings
is
were entered into the SEC's Work Load History
publicly accessible
meet our selection
1977 because 1978
filings after
9
(September, 1985 version).
in the
mid 1960s
early, 1985;
The database
is
it is
available
from
the Institute of Professional Accounting, University of Chicago, Graduate School of Business.
''It
was not
until the
19705 that the
SEC
provided a specific format for
although Rule I2b-25 requiring notification of untimely
was
filings
'*We assume that 10-K filings with the following characteristics
them fi-om the database: incomplete or apparently incorrect dates
the 10-Q or 10-K filing date for a subsequent
SEC
"onfile" date (the date the
SEC
fiscal
period
(if
indicates that the filing
Form
12b-25 notifications,
instituted before the 1970s.
are data errors,
in
and we eliminate
the database; a filing date after
available); or a filing date after the
is
publicly available).
Page:
28. 1992
August
Statutory filing date can be
date as the date the
SEC
between 90 and 93 days
indicates that
few days before a 10-K
typically a
The median
lag
between the
filing
delay
1
we
days,
is
partition the
and the
statistics in the table); thus,
filing date,
25""
the public in the reading
date and the date the
filing
three days (the
is
SEC
mean
is
75"" percentiles are -3
room
and
days (we do not report these
We
are
on the 90-day statutory due
present the
six to
date,
It is
interesting to note that
and 51 percent are within one
17 day delay partition because the
not monitor 10-K filings delayed only a few (five) days;" five percent of the 10-K
six
and 17
days.
The remaining
days; 2 percent are delayed
SEC will,
'*
percent of the 10-K
1
Although
and Zmijewski (1992)
it is
NYSE/ASE
"The
SEC
filings are
are delayed
does
delayed
more than
17
for a discussion of
not the focus of our study,
it
is
NYSE/ASE and NASDAQ
has fewer occurrences of delayed 10-K
10-K reporting
lags.
interesting to note that not
very early; only fourteen percent of the 10-K filings are filed
90-day statutory
filings
also presents these results for the
This partitioning indicates that the
''See Easton
filed
six
under
between 18 and 30 days, 2 percent between 31 and 60 days, and 2
percent more than 60 days. Table
separately.
publicly
The median 10-K
filing delay.
most circumstances, grant a 15 day extension automatically, and we conjecture that the
between
SEC.
at the
its
is
while most (80 percent) 10-K filings are filed by the 90-day statutory
fillings
day of statutory due date.
This date
5.1 days).^^
20 percent of the 10-K reports are filed after that date.'*
38 percent of the 10-K
define the filing
enters the 10-K into
sample by the length of the 10-K
and
We
received the 10-K filing (receipt date).
filing is available to
accessible database (the onfile date)
In Table
it
after the fiscal yearend.
10
more than
many 10-K
five
filing date.
15 day extension can extend to 17 days
if it
ends on
a
reports are
days before the
weekend or holiday
August
28.
filings
1992
Page:
than
NASDAQ
The SEC
(14 percent
Given
statutory filing date.
first file
a
Form
25 percent).^"
vs.
requires a firm to notify the
"Notification of Late Filing"
SEC
(Form 12b-25) with
this disclosure
of
its
inability to file a timely
SEC
the
requirement, firms that
12b-25; thus, partitioning the distribution in Table
of Table 2 show that, as expected, firms that
surprisingly, not
all
firms that
file
a delayed
10-K notify the
the majority (68 percent) of these firms do not
percent) firms that delay a 10-K report fewer than
a practical matter, the
date as timely
SEC may view
a
file
10-K reports
six
SEC
Form
days
filing a
a delayed 10-K filing should
file
1
by firms filing/not
first
10-K do not
a timely
file
10-K by
within one business day of the 90-day
12b-25 should partition the firms at approximately zero days delayed. The
A
by
filing a
Form
a
filed within five
a
percent of the firms with a 10-K
Form
a
file
Form
12b-25;
12b-25. In fact,
Very few
filing
days of the 90-day statutory
filing
between 6 and 17 days, 66 percent
file
a
Form
12b-25.
12b-25, or by filing a
granted by the
filing
file
a
Form
12b-25; 51
delay between 18 and 30 days. 47 percent of the firms with
The
results in
Table 2 indicate that numerous 10-K
by firms that violate the 10-K disclosure requirements by either
Form
(4
12b-25, possibly because, as
a 10-K filing delay between 31 and 60 days, and 33 percent of the firms with a 10-K filing delay
a
Form
three rows in Panel
12b-25 with the SEC.
file
filing
filings.
For firms that delay a 10-K
than 60 days,
H
Form
12b-25.
Form
filing
12b-25 but delaying the 10-K
The reason
disclosure requirements for this form
a firm
would not
do not appear
to
be
file
filing
a
more
filings are filed
a delayed 10-K and not filing
beyond the extension period
Form 12b-25
difficult to satisfy.
is
It
unclear since the
may be
that firms
-°We examined the delay distribution by year, and we compared the delay distribution of
December fiscal yearend firms to non-December fiscal yearend firms; the distributions are similar
across year and fiscal yearend partitions. This is not the case, however, for the number of days
between the date the SEC receives the 10-K filing (receipt date) and the date the 10-K is entered into
its computer system (onfile date).
There is a longer lag between the receipt and onfile dates for
December fiscal yearend filings (see Easton and Zmijewski (1992) for a discussion of the lag between
the receipt and onfile dates).
August
Page:
28. 1992
that delay a
10-K
filing well
beyond the extension granted by the Form 12b-25 do not
12b-25 because these firms expect to violate the
notification of late filing with the
SEC. These
SEC
filing
requirements even
results are similar for
both
if
file
a
12
Form
they do
file
a
NYSE/ASE and NASDAQ
firms.
The
results in
Panel
B
complied with the SEC's 10-K
file
a
of Table 2 show the number of firms with delayed 10-K
requirements. Recall that a firm delaying
filing
12b-25 within one day of
Form
its
90-day statutory
Form
within the extension period granted by filing the
of the 2,669
Form
12b-25
filings
the primary purpose of this study
10-K
filing
filing date,
and then
its
file
10-K
to
filing
must
the delayed 10-K
12b-25 (between 15 and 17 days). Only 1,274
(48 percent) comply with the 10-K filing requirements.
is
filings that
Although
examine the characteristics of firms that extend or violate the
requirements and not the decision process firms use to decide whether to comply with
SEC disclosure
requirements,
we provide some
Form
12b-25 prior to
that filed/did not
file
a
empirical evidence on the differences between firms
filing
a delayed 10-K to gain
some
insights
on
this
decision process.
The
implication for practitioners and researchers
who develop and
non-earnings accounting data to predict economic events
is
that not
all
backtest models that use
10-K
filings
are available
within three months of the fiscal yearend; therefore, such models assume data are available for firms
that did not release this information within the three
fact increases if firms that delay their
models are attempting
to predict.
We
10-K
month
filing are
period.
The importance of this
stylized
experiencing the economic events that such
examine the characteristics of firms that delay
their
10-K
filing next.
B.
The
filing is the
Information Disclosed on
first
Form
12b-25.
source of information regarding the characteristics of firms that delay their 10-K
Form
12b-25.
We
collected a sample of 182
Form 12b-25
filings
from the SEC, and we
August
Page:
28, 1992
summarized the information disclosed
12b-25)
why
it
could not
in
filing
date and
if
the firm anticipates
"any significant change in results of operations from the corresponding period for the last
will
be reflected by the earnings statements to be included
anticipates that
it
will report a significant
change
Table
filings in
3.
Many
firms provide
in the subject report."-^
summarize the information
more than one reason
within the 90-day statutory filing period; in the
two columns of Table
first
distribution of additional reasons.
The
last
of the firms" disclosures about the results of operations for the
in the 182
10-K
3
filings,
we
must
Form
10-K
present the
and
in the third
four columns present a
fiscal
year
If the firm
for their inability to file a
distribution of primary reasons provided by these firms for the delayed
column we present the
fiscal
in the results of its operations, the firm
We
provide a description of the anticipated change.
12b-25
Form
them. Rule 12b-25 requires a firm to disclose (on
10-K by the 90-day statutory
file its
13
summary
year of the delayed 10-K
filing.'^
We
their inability to file a
group the reasons given by firms for
statutory filing date into four major categories:
asset acquisitions
and
dispositions,
and
other.
Form 10-K by
financial distress, accounting
The
The accounting and
and auditing
issues,
financial distress category includes reasons
relating to debt negotiations, debt restructuring, bankruptcy, reorganizations,
condition.
the 90-day
and poor
financial
auditing issues category includes accounting issues or problems,
delays in obtaining information from within the firm or from a third party, audit related delays, and
investigations of financial statement information.
We
include any changes in the type or scale of
operations such as dispxDsitions or acquisitions of businesses and assets and business combinations
and liquidations
^^Securities
"To
10-K
and Exchange Act of
the extent that
filing,
and dispositions category;
in the asset acquisitions
filing.
may
March
we
include
all
reasons that
29, 1974.
incentives to not reveal the true reasons for the delayed
not provide an accurate description of the true reasons for
management has
the results in this table
the delayed 10-K
1934, Release No. 10707,
finally,
Augusi
Page:
28, 1992
are not related to any of the
U
three categories in the other category.
first
The most prevalent reason
stated for tiling delays
The
percent of the primary reasons).
debt negotiations and restructuring (19
is
financial distress category has the largest percentage of
primary reasons (31 percent), followed by the accounting and auditing issues category (27 percent).
financial distress, however, could be understated
The percent of firms experiencing
because several
of the non-financial distress reasons could be indirectly related to financial distress and, as such, the
financial distress category
may be
understated; for example, the audit related delays category could
be due to the increased scope of audit procedures necessary as a result of financial distress.^
Although most of the reasons provided by firms for the delayed 10-K
suggest that the firms are experiencing
for all firms; for
some
type of financial difficulty, this
example, in 5 percent of the
Form 12b-25
fact,
may not be
12b-25
the situation
filings the firms indicate acquisitions
businesses or assets as the reason for the delayed 10-K filing which
and, in
Form
filing in the
may
of
not reflect financial distress,
could even indicate the opposite.
In the remaining columns. Table 3 presents the expected change in earnings from the prior
fiscal
period as reported on
Form
12b-25.
Across
all
observations, 31 percent report an expected
negative change, 36 percent report no expected change, 10 percent report an expected positive
change, and 23 percent do not report the expected change (due to an inability to estimate the change
or the absence of a response). These results indicate that a small proportion of the sample expect
to report
improved earnings.
categories,
most of the
filings disclosing
Only 12 percent of the
issues category report
^Note
For both the
financial distress
an expected change
financial distress category
an expected increase
that 100 percent of the
Form
in earnings report
issues
an expected decline.
and 10 percent of the accounting and auditing
in earnings.
12b-25
and accounting and auditing
In summary, the stated reasons for delays
filings indicating audit-related
delays as the reason for
the delayed 10-K filing reported an expected significant negative earnings change.
August
Page:
28. 1992
10-K reports and the expected changes
in filing the
in earnings
reported on
Form
15
12b-25 suggest that
there are two types of firms; most firms are performing poorly, but a small percentage of these firms
may be performing
very well.
Proportion of Delayed 10-K Filings of Portfolios Based on Stock Returns.
C.
In this section of the paper
existence of economic events,
five
we
use annual market adjusted stock returns to proxy for the
and we compare the proportion of 10-K
delayed by more than
days across portfolios based on the magnitude of the annual market adjusted stock return. The
intuition underlying this analysis
develop models result
statement
is
in
in
is
that the
changes
exactly true for
For each firm
in the
economic events
as the difference
models that attempt
year,
(CRSP)
we rank
between the annual return
(portfolio
1
at the University
firms
is
on the
of Chicago
filings that are
filings in the
The
is
we measure
file
2.
This
the annual market adjusted return
and the annual return on the equally
developed by the Center for Research
in Security
our data source of stock returns. For each calendar
market adjusted return and form ten portfolios
delayed by more than
Form 12b-25
five
We
calculate the
days for each portfolio.
filings,
we
Given the
expect a higher proportion of
extreme portfolios, especially the poorly performing portfolios.
present the proportion of 10-K
portfolio in Figure
expected.
equity of the firm.
to predict stock returns.
for the firm
basis of their annual
reasons for the delayed 10-K stated in the
We
common
equal to the firms with the lowest market adjusted return).
proportion of 10-K
delayed 10-K
which practitioners and researchers
our sample we calculate the annual market adjusted stock return for the
weighted market index. The daily stock return
Prices
for
market value of the
period beginning the day after the statutory due date;
1
filings
The shape of
filings that are
delayed by more than
the graph in Figure 2
is
days for each
the mirror image of the letter
portfolio with the highest proportion (26 percent) of delayed
(firms with the lowest annual market adjusted return),
five
and the
10-K
J,
as
filings is portfolio
portfolio with the second highest
August
28, 1992
Page:
proportion (12 percent)
and reaches
its
is
portfolio
2.
This proportion declines for each of the next
lowest value (5 percent) for portfolio
7.
It
16
five portfolios,
then increases for each of the three
remaining portfolios, with the proportion increasing to 10 percent for portfolio 10 (highest annual
market adjusted return
NASDAQ (see
is
higher
if
Figure
the firm
returns, especially
if
2).
is
We
portfolio).
These
observe similar results for both the
results suggest that the likelihood of a firm delaying
is
we examine
the various financial characteristics of firms in the sample,
our data source for calculating
firms
all
The
Compustat.
on
all
to total assets,
financial characteristics
filing."^
and current
We
common
we
mean
calculate the
present the results for
all
(Panel B), and delayed 10-K
The
results in
we examine
equity,
we
by
first
change
files
with a
constructed by
all
measured
mean of
Form 12b-25
this file
for their entire history
in earnings per share scaled
common
by price,
median
equity,
total debt
financial characteristic in each
the eight time series medians.-^
filings
without a
In Table
Form
12b-25
(Panel C).
Table 4 indicate that firms that delay their 10-K
filing
tend to be small, have
'"An examination of the accounting rate of return on assets and rate of return on sales provide
qualitatively equivalent results to the rate of return
on common equity
results
we
present in the
paper.
^We
return.
delete observations with negative denominators
on
for the fiscal year of the delayed
observations (Panel A), delayed 10-K
filings
file,
are the market value of
calculating the
present the
history
accounting based financial characteristics;
assets to current liabilities,
calendar year (1978-1985). and
4
all
The Compustat annual
of Compustat's current and research
accounting rate of return on
10-K
filing
experiencing unfavorable economic events.
partitioning the firms by their 10-K filing delay.
contains
10-K
experiencing economic events that are reflected by market adjusted stock
the firm
In this section
is
its
Financial Characteristics of Firms with Delayed 10-K Filings.
D.
CRSP,
NYSE/ASE and
when
calculating the accounting rates of
August
28. 1992
Page:
17
negative rates of return on equity, negative changes in earnings, higher financial leverage, and lower
Firm
liquidity.
Table
The rank
4.
change
size
in
and
rate of return
on equity monotonically decrease across the
correlations between the 10-K filing delay
size, rate
earnings (scaled by price), and liquidity (current assets to current
than zero, and the rank correlation between the 10-K
less
and firm
filing
partitions in
of return on equity,
liabilities)
are reliably
delay and financial leverage
is
reliably greater than zero.
Although
file
Form
a
this
study does not focus on the decision process that firms use to decide to file/not
12b-25 for delayed 10-K
present such results in Panels
a
Form
Panels
12b-25 and Panel
B and C
C
filings,
interesting to partition the sample
it is
B and C of Table
4;
Panel
B presents
presents results for firms that did
on
this basis.
We
results for firms that did not file
file
Form
a
12b-25.
The
results in
are similar in that they both indicate a negative relation between the 10-K filing
delay and firm size, return on equity, change in earnings, and liquidity, and a positive relation
between the 10-K
that
a
file
do not
filing
delay and financial leverage. Panels
Form 12b-25 tend
file
Form
a
to be larger
B and C
and have worse accounting performance than firms
we examine
filing,
holding periods. The
and the second period
Filings.
is
first
return holding period
filing
is
delay as in Table
the 90-day statutory filing period.
often "predicted" in stock return prediction models.'*
-^See, for
example, Zmijewski (1983),
and Lev and Thiagarajan (1991)
Ou
4.
We
the fiscal year of the delayed
The
third period
annual period beginning the day after the 90-day statutory due date. The stock return
is
that
the market adjusted stock returns of firms in the sample over
various return holding periods, partitioning the firms by their 10-K
five return
in that firms
12b-25.
In this section
10-K
however,
Market Adjusted Stock Returns of Firms with Delayed 10-K
E.
examine
differ,
The fourth and
fifth
in this
is
the
period
periods partition the
and Penman (1989), Holthausen and Larcker (1992),
August
Page:
28. 1992
third period into the
10-K
filing
delay period and the remainder of the third period
(i.e..
18
the period
beginning the day after the 10-K receipt date to the 90-day statutory due date for the next
fiscal
year).
We
measure a
between the mean
firm's
mean
market adjusted return for a period as the difference
daily
daily return for the firm during that period less the
We
equally weighted market index during that period.
adjusted return by
we
year (1978-1985), and
t-statistics
calculating the
first
present the
mean
mean
daily
12b-25 (Panel C), and
filings
Form
without a
12b-25
calculate a portfolio's
market adjusted return for
all
daily return
mean
daily
we
present the results for
Form 12b-25 (Panel
filings that
B), delayed
10-K
on the
market
firms in a calendar
of the eight time series means in the table;
using the eight time series means.'^ In Table 5
(Panel A), delayed 10-K
mean
we
calculate
observations
all
filings
with a
Form
did not have 10-K filings for that fiscal year (Panel
D).
The
results in
Table 5 indicate that firms that delay a 10-K
market adjusted returns during the
fiscal
adjusted stock return during these holding periods.
more than 60
percent during the
The more
fiscal
days.
The
The
results in
number of days
mean market
market adjusted return of -0.27
it
in the return
financial
adjusted returns during the delay
Table 5 indicate that firms that delay their 10-K
observation by the
the
filing period.
mean market
the return holding period varies cross-sectionally (as
we weight an
is
period; further,
and researchers who use non-earnings
experience negative market returns during the delay period; the
-^If
more negative
daily
year and during the 90-day statutory
interesting results to practitioners
filing
results are quite striking for firms that delay
These firms have a mean
statement data to predict economic events are the
period.
delayed, the
is
on average, negative
have,
year and during the 90-day statutory
the results indicate that the longer a 10-K filing
a 10-K filing
filing
mean
filings
daily
more than
17 days
market adjusted returns
does, for example, in the delay period),
holding period.
August
Page:
28, 19<>2
10-K
for firms with a
delay between 18 and 30 days
filing
-0.20 percent,
and more than 60
delayed 10-K
filings into firms that file/do
days. -0.91 percent.^
not
a
file
is
We
Form
-0.23 percent,
between 31 and 60
also partition the
12b-25, see Panels
B and C
(Panel C). Firms that
file
in
Table 5 are
a
Form
B and C
12b-25 but did not
more
file
a
negative for firms that
10-K report
subsequent to the statutory 10-K
of Table
results in the fourth
filing
column of Table
more than
5 days.
and
12b-25
in the year
These
10-K
5 indicate that firms that delay their
the 90-day statutory due date for the delayed 10-K filing
filing
Form
the
period (see Panel D).
return for the period beginning the day after the 10-K receipt date
10-K
a
4,
5.
for that year experience even
experience negative market excess returns even after the 10-K receipt date. The
their
file
returns during the fiscal year, the statutory 10-K filing period,
more negative
The
similar, but
days,
sample of firms with
Consistent with our observations from the analysis of the financial characteristics in Table
results in Panels
19
is
mean
filing
daily excess
and ending twelve months
after
reliable less than zero for firms that delay
results suggest that studies that
develop models to predict
stock returns should consider the timing of the 10-K filing as a potential predictor variable.
Taken
together, the results in this section of the paper provide strong evidence that firms that
extend or violate the 90-day statutory 10-K
events, although
some
filing
period on average experience unfavorable economic
firms are also experiencing favorable economic events (see Figure 2).
On
average, however, these firms exhibit negative accounting rates of return for the fiscal year of the
delayed
filing
and negative market adjusted stock returns during the delay period. These
have implications for practitioners and researchers
who develop and
economic events. Not only do some firms release non-earnings
90-day statutory
^The
zero.
filing date,
backtest models that predict
financial statement data after the
but these firms tend to delay the release of such information
t-statistics indicate that all
of these
mean market
results
when
adjusted returns are reliably less than
they
August
Page:
28. 1992
are experiencing significant
economic events,
we provide evidence
In this section of the study
release similar information via
10-K
to
unless the firm satisfies one or
Approximately 70 percent of the
10-K; thus,
we can
ARS
however,
firms,
In the
ARS
filed
the 10-K
also the date the information
with the
SEC
An ARS
statement information
is
same
for the
that
is
file
less likely to file
ARS
is
the
SEC
with the SEC, firms that delay
10-K
filing date.
filing a
ARS
The date
citing the
ARS.
in addition to the
Form
becomes
filing indicates that
The
filing.
ARS with
SEC;
the
10-K are more
results in
financial statement information
disclose the
ARS
is
publicly before
^Although not reported
NASDAQ
ARS
with the
SEC may
further, conditional
filing,
not be the
files
the
ARS
with the SEC.
in the tables, the results for
firms are not as negative as the results for the
NASDAQ
and
firms.
5;
The
before
ARS
on
on or
filing
first
an
after the
32 percent have an
more than 60
ARS
filings;
days.
date that non-earnings
First, a firm
may
Second, a firm may release
separate analyses of
firms are consistent with the results in Tables 4
have
Table 6 indicate that firms
available publicly for at least two reasons.
it
SEC
non-earnings financial
likely to file the
ARS
filings that also
filings that arrive
only 13 percent for firms delaying a 10-K by
a firm files an
a
with the
before the 10-K fihng. This percentage, however, decreases for firms with delayed 10-K
is
is
disclosed publicly.
the timely 10-K filings that also have an
for example, this percentage
do not
with the SEC, assuming the date the
year and the percent of ARS
an
an
financial statement information first
before the 10-K
filed
ARS
Of
fiscal
released before the 10-K
10-K are
that delay filing a
filed
an
ARS with
an
filing
(annual report to shareholders)
two columns of Table 6 we present the distribution of 10-K
first
filing.
file
when
file
10-K
10-K disclosure requirements by
its
provide some evidence on
is
ARS
Firms are not required to
filings.
more of
publicly available by examining firms that
receives the
that firms that delay their
some other means. The
competing source of information
an
events.^'
Alternative Sources of Non-Earnings Financial Statement Information.
F.
SEC
economic
especially unfavorable
20
NYSE/ASE and
NYSE/ASE
results for the
August
28. 1992
Page.
preliminary non-earnings information before the 10-K receipt date.
Althougii there
empirical evidence supporting these reasons in the literature for firms that, on average,
10-K reports, there
To
if
is
no evidence
address this issue,
we
for firms filing delayed
also
10-K
examined press releases
some
is
file
21
timely
reports.'"
for a sub-sample of firms to ascertain
the firms released non-earnings financial statement data in a press release before the 10-K receipt
date.
10-K
We
searched the
filings
LEXIS/NEXIS company
more than
press release
for
file
all
firms that delayed their
Although some of the firms
17 days for fiscal yearends after 1982.^'
released income statement data in press releases before the 10-K receipt date, none of the firms
released non-earnings financial statement data. This analysis provides further evidence that firms
that delay their
10-K
filing
do not release non-earnings
financial statement data before the
10-K
receipt date.
An even stronger test of the potential
the 10-K receipt date
is
to
their preliminary earnings
earnings announcements
release of non-earnings financial statement data before
examine the frequency with which firms with delayed 10-K
announcement. To provide some
we conducted
the following
test.
announcements from the Compustat quarterly
history
Compustat quarterly
history
CRSP,
current and research
files
file,
constructed by
for their entire history
insights
First,
file
we
for a
contains
filings
omit
on the omission of preliminary
collected
all
available earnings
sample of 10-K
all
firms
on
on Compustat. For a 10-K
all
filings.
The
of Compustat's
filing for
which there
'°Dodd et al. (1984) consider the postmark date of an ARS sent to the NYSE in addition to the
10-K receipt date as the first date that non-earnings financial statement information is publicly
available. We compared their sample of NYSE postmark dates to the earlier of the SEC's 10-K and
ARS dates and find that the NYSE postmark date is, on average, 6.0 days before the earlier of the
SECs 10-K and ARS dates. Wilson (1985) presents results from a questionnaire to firms in his
sample to ascertain when firms release accounting accrual information; 13 percent of the firms
responding to his questionnaire released preliminary balance sheets and six percent released fourth
quarter financial statements before the release of the annual report to shareholders or the
the 10-K report.
Neither of these samples, however, examine firms that delay their 10-K
^'This database begins in 1983.
filing
filings.
of
August
Page:
:8. 1992
was no earnings announcement, we examined the earnings announcements on Compustat
previous quarters for that firm to ascertain
an earnings announcement on Compustat
quarter of the delayed 10-K
the firm;^^ then
filing,
it
the earnings
announcement was omitted.
If there
22
for
was
in either the quarter before, or four quarters before, the
we designated
the missing earnings
announcement
as omitted by
calculated the percentage of the earnings announcements that were omitted for
we
each of the partitions of the sample.
These
results (see the last
two columns of Table 6) indicate that firms that delay
filing
a 10-K
are less likely to issue a preliminary earnings announcement; further, firms that delay filing a 10-K
are
more
10-K
likely to
filings,
omit the preliminary earnings announcement for the
fiscal year.
Of
the timely
only 11 percent omit the earnings announcement. This percentage, however, increases
for firms with delayed
10-K
filings; for
example, 72 percent of the firms delaying a 10-K by more
than 60 days omit the preliminary earnings announcement.
Finally,
of the
Form
we were
12b-25
able to
filing for
document
if
a firm's financial statements
many of the 182 Form 12b-25
filings
we
were available by the date
collected from the
SEC. Table
7 provides information regarding the availability of non-earnings information at the date of the
12b-25
filing.
We
classified the information
financial statements
were available
in
from each Form 12b-25
some form by
in
Form
one of three ways:
the
the 90-day statutory filing date, the financial
statements were not available by that date, or the availability of the financial statements by that date
could not be ascertained.
financial statements that
The
were
results in
Table 7 show that only 3 percent of the sample had
available by the
Form 12b-25
filing date,
whereas 45 percent of the
sample indicated that the financial statements were not available."
-'-We verified that these earnings
announcements were not available
in
the Wall Street Journal
Index for a sub-sample of observations.
^'We could not ascertain
if
the financial statements were available for 52 percent of the sample.
August
28, 1992
Page:
Conclusions and Implications.
4.
In this study
we present evidence
statutory filing period; in fact, as
statutory fiUng date.
many
that not
all
firms
as 20 percent of the
file
10-K
10-K reports within the 90-day
filings are filed after the
month period following
information via other disclosures.
we document
In addition to the fact that not
that firms that delay their
10-K
filing
firms
all
economic events, delay
not
is
investigation of
do not release
timely 10-K
file
10-K report are not a random sample of
to 25 percent of the firms that are experiencing unfavorable
firms that are experiencing favorable
Our
the fiscal yearend.
alternative sources of this information suggests that firms that delay their
reports,
90-day
This result suggests that non-earnings financial statement information
always available within the three
this
23
firms;
up
economic events, and 10 percent of the
their
10-K filing.
On average,
firms that
delay their 10-K filing are small, have negative accounting rates of return, negative earnings changes,
low
liquidity,
and high
financial leverage; these firms also experience negative
returns during the fiscal year, the 90-day statutory filing period,
The
results in this study
market adjusted stock
and the delay period.
have implications for studies that examine the
ability
financial statement information to predict
economic events such as audit opinions,
bond
returns.
rating changes, mergers,
typically
a firm's
financial distress,
For example, studies that predict stock returns
months
after
yearend, and measure future stock returns as beginning three months after the
fiscal
assume
fiscal
and stock
of non-earnings
that such information
is
available to stock market participants three
yearend." The negative financial performance of firms that delay a 10-K
likely that trading strategies
these firms as firms to
sell
filing
suggests that
based on non-earnings financial statement information would
short
on the
basis of information that
is
it is
classify
not available to market
^"Examples of such studies are Zmijewski (1983), Ou and Penman (1989), Holthausen and
Larcker (1992), and Lev and Thiagarajan (1991); notable exceptions are Fama and French (1991)
who assume that non-earnings financial statement information is not available until six months after a
firm's fiscal yearend, and Sloan (1992) who conducts robustness checks by examining alternative
assumptions for the public availability date of non-earnings financial statement data.
August
28. 1992
Page:
participants.
Our
results suggest that verifying the public availability of non-earnings financial
statement information
We
also
is
an important consideration
document
that firms
in the
do not always follow
experimental design of such studies.
SEC
disclosure regulations.
Fewer than
one-half of the firms that filed a delayed 10-K also filed the appropriate notification of late
on Form 12b-25 with the SEC;
interestingly, the
sample of firms that
filed a
interesting direction for future research
whether
to
comply with
SEC
is
filing
Form 12b-25 tend
be larger and have more negative financial performance than firms that did not
An
24
file
a
Form
to
12b-25.
to study the decision process firms use to decide
disclosure regulations.
August
Page:
28, 1992
25
References
M. E. Zmijewski, 1992, "Analyst following and the anomalous stock market reaction
earnings announcements," Unpublished Working Paper, University of Chicago,
delayed
to
Chicago, IL.
Alford, A. and
American Stock EKchangt, American Stock Exchange Company Guide, American Stock Exchange,
New
York, NY, 1992.
E.. and S. H. Penman, 1984, "Timeliness of reporting and the stock price reaction to
earnings announcements," Journal of Accounting Research 22 (Spring), 21-47.
Chambers, A.
Dodd,
N. Dopuch, R. Holthausen. and R. Leftwich, 1984, "Qualified audit opinions and stock
prices," Journal of Accounting and Economics 6, 3-38.
P.,
Easton, P. D. and
M.
E. Zmijewski, 1992,
"SEC Form lOK/lOQ
reports
and annual reports to
errors," Unpublished
and squared market model prediction
shareholders: Reporting lags
working paper. University of Chicago, Chicago,
II.
Fama, E. and K. French, 1991, "On the cross-section of expected stock
Working Paper, University of Chicago, Chicago, IL.
returns".
Unpublished
Holthausen, B. and D. Larcker, 1992, "The prediction of stock returns using financial statement
information," Unpublished working paper. University of Pennsylvania, Philadelphia, PA.
Howe,
J. S.
and G. G. Schlarbaum, 1986, "SEC trading suspensions: Empirical evidence," Journal
of Financial and Quantitative Analysis, (21, 3), 323-333.
Kross, W., 1981a. "Profitability, earnings announcement time lags, and stock prices," Journal of
Business Finance and Accounting 9, 313-328.
Kross, W., 1981b. "Earnings and
Announcement Time
Kross, W., and D. A. Schroeder, 1984,
announcement timing on stock
"An empirical
Lags," Journal of Business Research
9,
267-281.
investigation of the effect of quarterly earnings
returns," Journal ofAccounting Research 22 (Spring), 153-176.
Lawrence, E. C, 1983, "Reporting delays
(Autumn), 606-610.
for failed firms," Journal
of Accounting Research 22
R. Thiagarajan, 1991, "Fundamental information analysis," Unpublished working
paper. University of California at Berkeley.
Lev, B. and
S.
National Association of Securities Dealers, Inc., National Association of Securities Dealers Manual,
Commerce Clearing House, Chicago, IL, 1992.
Stock Exchange, New York Stock Exchange Listed Company Manual,
Exchange, New York, NY. 1992.
New York
New York
Stock
August
28. 1992
Page:
Ou, J. A. and
S.
H. Penman, 1989, "Financial statement analysis and the prediction of stock
26
returns,"
Journal of Accounting and Economics, (4) 295-329.
Penman,
S.
H., 1984,
repxDrts,"
"Abnormal returns
to investment strategies
Journal of Accounting and Economics
SEC
V.
Ener-Mark Corporation,
SEC
V.
Unioil and William M. Mulderig,
Release No. 12641.
Civil
6,
based on the timing of earnings
165-183.
Action No. 90-1550-JHG, D.D.C., July
Civil
Wharton School, University of Pennsylvania,
Watts, R. and
J.
Zimmerman,
SEC
Litigation
Working paper. The
Philadelphia, PA.
United States Securities and Exchange Commission, 1974,
March
1990, LR-12532.
Action No. 88-2803 TPJ (D.D.C.),
Sloan, R. G., 1992, "Is the market fixated on reported annual earnings,"
Release No. 10707,
3,
Securities
and Exchange Act of 1934,
29, 1974.
1986, Positive Accounting Theory, (Prentice-Hall,
New
York, NY).
Wilson, P. 1985, "The incremental information content of accruals and cash flows after controlling
for earnings.
Unpublished Ph. D.
Zmijewski, M. E., 1983. "A
test
dissertation,
Carnegie-Mellon University, Pittsburgh, PA.
of the incremental information content of financial statements
beyond that contained in earnings numbers," in "Essays on Corporate Bankruptcy,"
Unpublished Ph.D. dissertation. State University of New York at Buffalo, Buffalo, NY.
August
Page:
28, 1992
Figure
Time-Line
Fiscal
Yearend
(t)
— >|<-
for the
SEC Form
90 Day Filing Period ->
<
••
|c
|<- Initial ->
12b-25 Filing
Delay Period
—
— >|< —
>|
Fiscal
Yearend
(t-H)
(t)
>
—
10-K Statutory Filing Date
10-K Filing
|
|<
1
Actual
Statutory
10-K Filing
Date (t)
27
>
••
—
>
|
Statutory
10-K Filing
Date (t+1)
<- 90 Day Filing Period ->
Actual Filing to Next Due Date
Due Date to Next Due Date
—
|
>|
>|
—
August
28. 1992
Page:
Figure 2
Percentage of Delayed 10-K Filings for Portfolios
Based on Annual Market Adjusted Returns
30%
28%
26%
24%
22%
20%
18%
16%
14%
V
I
D
r
12%
8% -
6% -
4% -
2%
2
3
5
6
10
7
Portfolio C1-Lowest Return)
D
Total
Sarrple
+
NYSE/ASE
NASDAQ
28
August
28.
Page:
1992
Table
1
Distribution of 10-K Filings by 10-K Filing Delay
Firms Partitioned by Stock Exchange
29
August
Page:
28. 1992
Table 2
Form 12b-25 Filings by 10-K Filing Delay
Firms Partitioned by Stock Exchange
Distribution of
Total Sample
Number
of
10-K Filing'
Delay (DD)
Panel A:
12b-25
Filings
Percent
of
10-K
Filings'^
NYSE/ASE^
Number
of
12b-25
Filings
Percent
of
10-K
Filings
NASDAQ^*
Number
12b-25
Filings
Distribution of 10-K Filing Delays for Firms that Filed
Form 12b-25
DD <= -5
Percent
of
of
10-K
Filings
a
30
August
28.
Page:
1992
Notes to Table
1
2
3
31
2.
10-K Filing Delay (DD) is the number of days between the actual 10-K
the 90 day statutory filing date.
filing
date and
The percent of 10-K filings is equal to the number of 12b-25 filings divided by
number of 10-K filings for that partition in Table 1, multiplied by 100 percent.
NYSE/ASE
indicates firms in sample listed
the
on the New York Stock Exchange or
American Stock Exchange.
4
NASDAQ
indicates firms in sample that trade
on the National Association of Security
Dealers Automated Quotations System.
5
Total 12b-25 Filings w/ 10-K
10-K
6
filed by the firm for the
is
the
same
number of 12b-25
filings for
which there was also a
fiscal year.
12b-25 Filings w/o 10-K is the number of 12b-25
by the firm for the same fiscal year.
filings for
which there was no 10-K
filed
August
28. 1992
Page:
Table 3
Description of Information
in
SEC Form
12b-25 Filings
Significant Earnings
Change for Current Year
Indicated in Form 12b-25
Primary Reason
Provided by Firm
stated Reason for the
Untimely Filing
Panel
A:
# of
Obs^
Financial Distress
Debt negotiations/restructuring
Bankruptcy /reorganization
Poor financial condition
Total Financial Distress
34
% of Obs^
Additional"
Reasons
Provided
Neg# of
Obs
Row %
None
Pos +
Row %
Row %
N/R
Row %
32
August
4
28. 1992
Page:
Neg-, None, Pos + N/R, respectively, indicate that the firm stated in the
,
that the firm's earnings
would
Form
12b-25
significantly decrease, not significantly change, significantly
increase, or did not report any information relative to the previous year's earnings;
present the row percent
5
#
of
Obs
6
%
of
Obs
is
is
the
(Row %)
for each primary reason.
number of observations providing each
the percentage of
33
all
reason.
observations providing each reason.
we
August
Page:
28. 1992
Table 4
Means of Firms
10-K Reports
Sample Partitioned by 10-K Filing Delay
Financial Characteristic
Market^
10-K Filing''
Delay (DD)
Filing
34
August
Notes
1
Page:
28. 1992
to
Table
35
4.
10-K Filing Delay (DD)
is
the
number of days between
the actual 10-K filing date and
the 90 day statutory filing date.
2
Equity is presented in millions of dollars. We measure
the market value of common equity as of the end of the fiscal year. For all of the means
we present in this table, we first calculate the median for a partition across observations
within a calendar year (which results in eight time series medians), and then we present
Mean Market Value
the
3
mean
4
Change
Common
of the eight time series means.
Return on
common
of
common
equity
is
net income divided by
in
EPS
by price
is
Debt
6
Mean
equity; firms with negative
the change in earnings per share after extraordinary items
divided by the stock price at the beginning of the
5
common
equity were deleted from the sample.
to total assets
is
total debt divided
fiscal year.
by total assets.
correlation between delay and characteristic
is
calculated by
first
calculating the
rank order correlation between the 10-K filing delay and the financial characteristic in
each of the eight calendar years, and then we present the mean of the eight time series
means. We use the time series of eight correlations to calculate a t-statistic to test the
null hypothesis that the
mean
correlation
is
equal to zero; "*" indicates that the null
hypothesis can be rejected at five percent level of confidence.
August
28,
1992
Page:
Table 5
Mean
Daily Market Adjusted Stock Returns of Firms Filing 10-K Reports
Sample Partitioned by 10-K Filing Delay
10-K Filing''
Delay (DO)
36
August
28. 1992
Notes
1
to
Page:
Table
37
5.
10-K Filing Delay (DD)
is
number of days between
the
the actual 10-K filing date
and
the 90 day statutory filing date.
2
Fiscal year of delayed
fiscal year.
For
all
mean daily market adjusted stock return
means we present in this table, we first calculate
10-K
of the
is
the
during the
the
mean
for a
partition across observations within a calendar year (which results in eight time series
means), and then we present the mean of the eight time series means. We use the time
series of eight means to calculate a t-statistic to test the null hypothesis that the mean is
equal to zero; "*" indicates that the null hypothesis can be rejected at five percent level of
confidence.
3
90 day statutory
filing
period begins on the day after the
fiscal
yearend and ends
at the 90
day statutory due date.
4
Delay period begins on the day after the 90 day statutory filing period and ends on the
actual 10-K filing date. This return holding period varies across 10-K filings and does not
exist for timely 10-K filings.
5
Actual
filing to
next due date period begins on the day after the actual filing date
and
ends on the 90 day statutory filing date for the next fiscal year. This return holding
period is equal to one year (beginning three months after the fiscal yearend) less the
delay period, which is equal to one year for timely 10-K filings.
6
Due
date to next due date period begins on the day after the 90 day statutory
filing
date
year.
and ends on the 90 day statutory filing date for the next fiscal
This return holding period is equal to one year (beginning three months after the
fiscal
yearend), which
for the current fiscal year
is
equal to the
sum of
the return holding periods of the previous
two columns.
7
There were 151 Form 12b-25
filings
without 10-K
indicates that a the return holding period
is
filings for that fiscal year.
N/R
not relevant for a particular partition.
August
Page:
28, 1992
Table 6
Frequency and Timing of Annual Reports
to Shareholders
Preliminary Earnings Announcements
10-K Filing''
Delay (DD)
and
38
August
Page:
28. 1992
Table 7
Financial Statement Availability Indicated in
Form
12b-25 Filings
Financial Statements^
Available by
Statutory Filing Date
Not
Stated Reason for the'
Untimely Filing
Financial Distress
Panel A:
Debt negotiations/restructuring
Bankruptcy/ reorganization
Poor financial condition
Total Financial Distress
Accounting/Auditing Issues
Panel B:
Accounting issue/problems
Delay in obtaining information
Information needed from 3rd party
Audit related delay
Investigating numbers
Total Accounting/Auditing Issues
Total Asset Acquisitions/Dispositions
Other
Panel D:
Changes in top executives
Printing delays
Litigation/regulation related
Review/signature of officers/directors
Need registration statement approval
Labor/employee related
Miscellaneous
Total Other
All Observations
Notes
1
to
Table 7
Avail
Avail
N/R
Row %
Row %
Row %
3
39
Date Due
Lib-26-67
MM
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