The rapid evolution of Internet technology has created the ability to disseminate information nearly instantaneously to a worldwide audience. Corporations have exploited this capability to provide a variety of timely financial information, including real-time stock price quotes, online news wires, and online analyst conferences. Accounting reports have traditionally been an important component of the set of corporate financial information [4], and there have been optimistic predictions that real-time online financial reporting will be ushered in by the new Internet technology [8].
This study investigates the speed with which accounting reports are posted at corporate Web sites. Posting speed is indicative of managers’ incentives to adopt real-time, or at least more timely, Internet reporting in the future. Our results indicate that on average there is a lag of 30 days between the dates that annual reports are filed with the SEC and the dates they are posted at the Web sites. We also find a great deal of variation in the updating lags and identify some of the characteristics associated with speedy or slow updating of Web sites.
Internet technology and low-priced trading commissions have increased the presence and importance of individual investors in the securities markets. A subset of active, individual investors increasingly demand the same rapid access to financial information enjoyed by analysts and professional investors [6, 10]. Corporate Web sites potentially provide a means of increasing their access to information. SEC regulators and corporate Investor Relations (IR) managers have noticed the growing activity and wealth of individual investors, and anticipate they will demand improved access to information [10].
Given the increasing importance of individual investors and the capability of the Internet to rapidly distribute financial information to this audience, we set out to evaluate how quickly firms publish their new annual financial reports on their Web sites.1
Our study is based on a random sample of 50 companies. Our source of sample companies is Standard & Poor’s Compustat 1999 database. We began with the population of companies with June 30th year-ends. Because prior research indicates that larger companies are more likely to maintain Web sites [1, 7], we narrowed the potential pool to companies with sales in the top half of the group. Sales in this pool ranged from $37.2 billion to $37.5 million. We used a random number generator to select potential observations from this group. For each potential observation, we searched for a Web site that included the company’s prior-year financial statements. We required each sample company to have its prior year’s annual report posted at its Web site because we are investigating information updating rather than the decision to provide information.
If these criteria were met, the company was added to the sample. We examined 215 potential observations to identify the 50 companies in our final sample.
The sample companies had average sales of $866 million, with a standard deviation of $1,317 and a median $297 million. Thus, there appears to be a wide range of company sizes represented in the sample. Thirty-six SIC codes are represented, including companies from food, pharmaceutical, and consumer products manufacturing, technology, and service industries. In summary, it appears our sample represents a reasonable cross-section of public companies, given the constraints of the sample size.
Companies with June 30 fiscal year-ends are required to file their annual financial reports with the SEC by Sept. 30, so our team began visiting the firms’ Web sites in early September. It is unlikely that companies will provide significant information at their Web sites prior to filing because of SEC and stock exchange rules governing the dissemination of information [9]. We continued daily visits until the end of the year (over three months) or until the 1999 annual report was posted. During this period, two companies were eliminated from the sample because they changed their fiscal year-ends, and one because it merged out of existence, leaving 47 firms in the sample.
The Updating Lags
We calculated updating lags—the number of days between the date the companies filed their annual report with the SEC and the date the information appeared at their Web sites.2 Of 47 sample firms, 39 posted their annual reports within three months of the SEC filing deadline while eight firms continued to maintain Web sites, but did not post their 1999 reports.3
Figure 1 shows the distribution of the update lags by number of weeks. Only six companies (13%) posted their reports within a week of their SEC filing date. The same number of companies posted their reports two months or more after their filing date (weeks 914). Clearly, there are large differences in the amount of time it takes different corporations to post data.
Why Do Updating Lags Vary?
We consider seven firm characteristics that might explain some of the variation in the time it takes firms to update their Web site financial information. The number of shareholders and the number of analysts that follow the company are intended to capture the relative level of demand for a firm’s information. The number of shareholders is a proxy for the number of individual shareholders. We expect that more individual shareholders represent an increased demand for Web site financial data, so the update lag will be shorter.
Analysts provide another potential source of demand for Web-based financial information. Of course, these users likely have the financial sophistication to understand Form 10-K filings, and they also have access to fee-based information services. So it may be that analysts use corporate Web sites mainly to obtain non-financial information. Still, we expect to find that the greater the number of financial analysts following the firm, the smaller the update lag will be.
We expect that larger and more profitable companies will have shorter update lags. Prior evidence suggests financial information is distributed more quickly when the information is good [5] and that larger companies release information more rapidly [3]. We expect this to be true of Web site information, too. Similarly, firms usually release an earnings announcement that contains a highly summarized version of the year’s results within about a month of year-end. The lag in announcing fiscal year 1999 annual earnings is included to capture firm incentives and disincentives to distribute information rapidly that are not otherwise captured in the model. We expect the earnings release lag will be positively related to the Web site posting lag.
Finally, two variables address various ways in which financial information can be provided at the Web sites. A company may consider a link to its Form 10-K filings at the SEC’s Electronic Data Gathering and Retrieval (EDGAR) site to be a substitute or stopgap form of providing the information until they post the financial reports at their own Web site. We expect firms providing such a link will have longer lags than firms that do not.
At the Web site, firms can provide their reports in several formats, usually plain text, PDF, or HTML. Preparing a financial report in PDF or HTML format takes time. This suggests the update lag might be longer if the firm publishes financial statements in both PDF and HTML formats. On the other hand, firms that publish their financial statements in both PDF and HTML formats might be firms that intend to exploit fully the capabilities of the Internet for financial reporting. Firms with a significant interest in Internet financial disclosure would likely have a shorter update lag. Given these two opposing possibilities, we are unable to predict the relationship between presentation format and update lag. A summary of each of these variables, their measurements and their expected relationships with the posting lags is provided in Table 1.
Our Findings
Table 2 presents descriptive statistics for the firm characteristics discussed here. The columns labeled “1,” “2,” and “3” indicate the update lag in months. The eight companies that did not post 1999 annual reports during our monitoring period are also included for comparison. Firms with longer update delays tend to have fewer analysts, are less profitable, are smaller, have longer earnings release lags, and are more likely to have EDGAR links. However, only the differences in profitability are statistically significant.
The eight firms that did not update their information during our monitoring period most closely resembled the third-month updaters, although they had even fewer shareholders and analysts, lower income, and longer earnings release lags. They also had more EDGAR links than any other group.
We used regression analysis to analyze the 39 firms that did post 1999 annual reports. Results are shown in Table 3. The update lag is the dependent variable.4 Results for the explanatory variables indicate that, as expected, firms that are more profitable (net income/revenue) update their Web sites more rapidly. Apparently, better news travels faster. Also, companies that provide both PDF and HTML formats update their financial information more quickly. This result suggests the presentation of both types of formats captures the firm’s commitment to maintaining a high-quality Web site, assuming that high-quality embraces both user-friendly site content and up-to-date information.
Also as expected, firms that provide a link to the SEC’s EDGAR site are slower to post new reports on their Web sites. This is consistent with companies using off-site access to the firm’s 10-K (via EDGAR) as an interim method of providing the information, reducing the immediate need for onsite financial information. Finally, the results indicate that firms slower to announce their fourth-quarter earnings to the news media are also slower to update their Web sites. Thus, firms’ speed in releasing information in traditional media is reflected in the rapidity with which it updates its Web site information.
Interestingly, neither of the variables intended to capture user demand for financial information is significant (numbers of shareholders or financial analysts). Nor does firm size (log of assets) explain updating speed.5
Conclusion
The contrast between the nearly instantaneous dissemination of stock quotes, online news wires, and online analyst conference calls at Web sites, and the lag in updating annual financial reports, is dramatic. Not only do most companies consume nearly three months preparing the accounting information for filing with the SEC, our sample demonstrates there is an additional, and often significant, time lapse before the companies publish the annual reports at their Web sites. Firm profitability and dedication to Internet reporting appear to be particularly important in explaining the length of the lag period.
The role of profitability raises some potentially troubling issues, since investors looking for information about firms with poorer results may not find this information as promptly as they would like. Although these slower posters also tend to provide EDGAR links, the EDGAR documents are generally much more extensive, technical, and difficult for non-professional investors to understand.
Commitment to Internet reporting is a concept that deserves more research. The current study captures this phenomenon with an indirect measurement (the number of formats used to present information), but we do not yet have a full understanding of the characteristics of companies that fall into this category. It is important to investigate this construct further, because advances in internal report generating technology (for example, SAP, Peoplesoft, and so on) will eventually bring the potential for real-time reporting closer to reality. However, the capability will be moot if companies are not committed to rapid dissemination of the information. Given the results of this study, we wonder if many firms have adequate incentives to distribute the financial results of their performance on such a timely basis.
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