Corporate Governance and Timeliness
Working Paper May 2008
CORPORATE GOVERNANCE AND THE TIMELINESS OF FINANCIAL REPORTING: AN EMPIRICAL STUDY OF THE PEOPLE’S REPUBLIC OF CHINA
Robert W. McGee, Florida International University Xiaoli Yuan, California State University, East Bay ABSTRACT
Timeliness of financial reporting is one of the attributes of good corporate governance identified by the OECD and World Bank. Shareholders and other stakeholders need information while it is still fresh and the more time that passes between year-end and disclosure, the more stale the information becomes and the less value it has. This paper examines the timeliness of financial reporting in the People’s Republic of China. The timeliness of financial reporting was measured by counting the number of days that elapsed between year-end and the date of the independent auditor’s report for a number of Chinese companies. Those results were then compared to data of non-Chinese companies in developed market economies to determine whether there was a significant difference. This study also examines which independent audit firms issued the audit opinion and which sets of accounting standards were used (IFRS, US GAAP or Chinese accounting standards) to determine which audit firms and accounting standards dominate.
INTRODUCTION Transparency is a very important component of financial reporting. Companies must disclose anything that might influence the investment decision of an informed investor. Nothing of consequence may be hidden. This rule is widespread and pervasive. Stock exchanges require it. Government agencies require it. Various accounting rulemaking bodies require it, including the Financial Accounting Standards Board in the United States and the International Accounting Standards Board. One aspect of transparency is timeliness. Generally speaking it is better to disclose information sooner rather than later, although there are some tradeoffs. For example, companies that issue their annual reports on January 1 are
CORPORATE GOVERNANCE AND THE TIMELINESS OF FINANCIAL REPORTING: AN EMPIRICAL STUDY OF THE PEOPLE’S REPUBLIC OF CHINA
Robert W. McGee, Florida International University Xiaoli Yuan, California State University, East Bay ABSTRACT
Timeliness of financial reporting is one of the attributes of good corporate governance identified by the OECD and World Bank. Shareholders and other stakeholders need information while it is still fresh and the more time that passes between year-end and disclosure, the more stale the information becomes and the less value it has. This paper examines the timeliness of financial reporting in the People’s Republic of China. The timeliness of financial reporting was measured by counting the number of days that elapsed between year-end and the date of the independent auditor’s report for a number of Chinese companies. Those results were then compared to data of non-Chinese companies in developed market economies to determine whether there was a significant difference. This study also examines which independent audit firms issued the audit opinion and which sets of accounting standards were used (IFRS, US GAAP or Chinese accounting standards) to determine which audit firms and accounting standards dominate.
INTRODUCTION Transparency is a very important component of financial reporting. Companies must disclose anything that might influence the investment decision of an informed investor. Nothing of consequence may be hidden. This rule is widespread and pervasive. Stock exchanges require it. Government agencies require it. Various accounting rulemaking bodies require it, including the Financial Accounting Standards Board in the United States and the International Accounting Standards Board. One aspect of transparency is timeliness. Generally speaking it is better to disclose information sooner rather than later, although there are some tradeoffs. For example, companies that issue their annual reports on January 1 are