Mandatory Monthly Sales Disclosure and the Information Content of Earnings

SynopsisThe research problemTaiwanese stock markets practice a unique form of reporting frequency, combining quarterly interim financial reports with mandatory monthly sales announcements. This unique setting allows us to compare the information content of quarterly earnings that are announced before, bundled with, or announced after the monthly sales disclosures.MotivationMonthly sales disclosures likely contribute to the pricing of earnings announcements (EAs) by providing investors with valuable information that helps them revise their expectations when forecasting earnings and cash flows. We examine whether monthly sales disclosures help investors to process earnings information.The test hypothesesOur first hypothesis is that the immediate market response to earnings news is lower if the previous quarter's EAs are disclosed after the reporting of monthly sales for the first month of the next quarter. Our second hypothesis is that the subsequent market response to earnings news is lower if the previous quarter's EAs are disclosed after the reporting of monthly sales for the first month of the next quarter.Target populationWe studied a sample of Taiwanese listed firms from 2014 through 2018.Adopted methodologyWe used multivariate regressions to test the hypotheses.AnalysesWe examined the monthly sales disclosures for the first month of quarter q+1, which are released within the first 10 days of the second month of quarter q+1. We analyze the pricing of the content of the earnings of quarter q, conditional on whether the earnings are released before, simultaneously with, or released after the monthly sales disclosures.FindingsWe found that earnings disclosed after the monthly sales news are associated with weaker EA returns and post-EA drift, relative to earnings disclosed before or bundled with the monthly sales news. These results suggest that monthly sales disclosures preempt the information content of late EAs. More importantly, we found that late EAs are associated with less positive correlation between EA returns and post-EA returns than early and bundled EAs. Overall, these results suggest that by providing timely sales information, monthly sales disclosures improve the information environment.