4.3 Ordinary Least Squares regression
4.3.2 OLS regression KS statistic
Below, the results of the OLS regression with the KS statistic as the dependent variable.
Table 4.6 Ordinary Least Squares Regression KS statistic
KS Coef. St.Err. t-value p-value [95% Conf. Interval]
Constant 0.124 0.002 47.11 0.000*** 0.119 0.129
QREP -0.004 0.002 -2.20 0.028** -0.008 0.000
TECH -0.049 0.021 -2.31 0.021** -0.091 -0.007
EG -0.102 0.025 -4.10 0.000** -0.151 -0.053
R_ACC_REV -0.066 0.013 -5.04 0.000*** -0.091 -0.040 FIN_POSI -0.006 0.002 -4.12 0.000*** -0.010 -0.003
SIZE -0.000 0.000 47.11 0.011** -0.000 -0.000
Mean dependent var 0.113 SD dependent var 0.039
R-squared 0.044 Number of obs. 1648
F-test 12.399 Prob > F 0.000***
Akaike crit. (AIC) -6003.219 Bayesian crit. (BIC) -5965.453
*** p<.01, ** p<.05, * p<.1
The results here are similar to the OLS regression with the MAD statistic as the dependent variable. The only difference here is the lower R-squared, which means that the model explains less of the variance of the mean of the KS statistic. However, the model is significant which shows that the independent and control variables, except SIZE, also affect the KS statistic.
5 Conclusion
This study examines the relationship between financial reporting frequency and financial reporting quality. Since reporting quarterly is under scrutiny, the objective here was to investigate whether reporting less frequently improves the financial reporting quality. To investigate this, I examine the event when the SEC changed the financial reporting frequency from semi-annual to quarterly. Subsequently, I did an event study to answer the research question: What is the effect of quarterly vs. semi-annual reporting on reporting quality?
The findings of this research suggest that quarterly reporting improves the financial reporting quality as the number of financial statement divergence decreases when firms report quarterly. Even though many other factors also influence the financial reporting quality, the effect of financial reporting frequency on the financial reporting quality still distinguishes itself from the other effects.
Furthermore, the contribution to the academic literature is that short-termism of reporting more frequently is not present as reporting more frequently improves the financial reporting quality. From prior research, it shows that reporting more frequently demands more transparency which improves the financial reporting quality. My study adds to this by empirically proving that the financial reporting quality indeed improves when firms need to report more frequently.
This study contributes to the practice by informing firms to design their management accounting systems to report more frequently or even report continuously for internal control purposes. Since reporting more frequently increases transparency towards employees, managers and investors.
The most important limitation of this study is the timeframe of the event as the data from 1969-1970 is rather old. Furthermore, the changes in the economic environment between now and the event could have changed significantly, which means that the findings of this research are not relevant anymore. Another limitation is that there could be numerous random factors that influence the financial reporting, which are not included in the empirical research.
Therefore, the effect of financial reporting frequency on the financial reporting quality could be explained by other random factors during the event.
For this reason, I suggest that for future research that may emerge from my study, a research is needed in the present time or at least more recently. Another suggestion is to use
another research method since this may confirm the findings of this study from another perspective.
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