Strategic Earnings Announcement Timing and Fraud Detection

Xin Cheng (), Dan Palmon (), Yinan Yang () and Cheng Yin ()
Additional contact information
Xin Cheng: Renmin University
Dan Palmon: Rutgers Business School
Yinan Yang: Southwestern University of Finance and Economics
Cheng Yin: Tsinghua University

Journal of Business Ethics, 2023, vol. 182, issue 3, No 14, 874 pages

Abstract: Abstract This study investigates whether firms with fraudulent financial reporting time their earnings announcements strategically and finds that fraudulent firms are more likely to disclose their earnings in the after-market hours during their fraud periods to postpone fraud detection. Cross-sectional tests show that firms with lower visibility are more likely to adopt and benefit from this timing strategy. In addition, fraudulent firms are found to time their conference calls strategically and package their earning news with forecasts to flood the market with information and lower the fraud detection rate. Results also show that unethical managers may benefit from insider trading when their firms use a timing strategy to lower the detection rate. This study sheds light on a potential strategy that unethical managers may adopt to camouflage their fraudulent financial reporting. These results are robust to a variety of settings of samples and model specifications.

Keywords: Earnings announcement; Fraudulent financial reporting; Bundled earnings; Insider trading; Voluntary disclosure (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10551-021-05029-2

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