Premium
How Frequent Financial Reporting Can Cause Managerial Short‐Termism: An Analysis of the Costs and Benefits of Increasing Reporting Frequency
Author(s) -
GIGLER FRANK,
KANODIA CHANDRA,
SAPRA HARESH,
VENUGOPALAN RAGHU
Publication year - 2014
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12043
Subject(s) - business , cost of capital , capital expenditure , value (mathematics) , capital (architecture) , finance , capital market , accounting , actuarial science , economics , monetary economics , microeconomics , computer science , profit (economics) , archaeology , machine learning , history
We develop a cost–benefit tradeoff that provides new insights into the frequency with which firms should be required to report the results of their operations to the capital market. The benefit to increasing the frequency of financial reporting is that it causes market prices to better deter investments in negative net present value projects. The cost of increased frequency is that it increases the probability of inducing managerial short‐termism. We analyze the tradeoff between these costs and benefits and develop conditions under which greater reporting frequency is desirable and conditions under which it is not.