Are interim management statements redundant?Citation formats

TY - JOUR

T1 - Are interim management statements redundant?

AU - Schleicher, T.

AU - Walker, Martin

N1 - Financial support from the ESRC, Grant Number ES/J012394/1, is gratefully acknowledged.

PY - 2015/3/3

Y1 - 2015/3/3

N2 - In 2004 the Transparency Directive increased the reporting frequency by mandating the Interim Management Statement (IMS). However, only nine years later, the EU announced that it was making quarterly reporting voluntary again arguing that IMSs are redundant as they are unlikely to contain any additional information not already required by the Market Abuse Directive (MAD). The current paper tests this argument empirically. For that it collects data on trading statements from a post-MAD pre-IMS year and uses these statements to predict which IMSs are genuinely incremental firm announcements (‘incremental IMSs’) and not simply substitutes for otherwise disclosed trading statements (‘non-incremental IMSs’). It then calculates three-day abnormal return variability and abnormal trading volume associated with incremental and non-incremental IMSs and it makes three observations. First, the introduction of IMSs coincided with a substantial reduction in other trading statements consistent with a large substitution effect between IMSs and non-periodic trading statements. Second, incremental third-quarter IMSs, but not incremental first-quarter IMSs, exhibit significantly positive abnormal return variability and abnormal trading volume suggesting that the withdrawal of IMSs will involve the loss of some relevant information. Third, higher abnormal return variability and trading volume for non-incremental IMSs, relative to incremental IMSs, are consistent with the argument that a MAD-only regime will ensure the release of most relevant information.

AB - In 2004 the Transparency Directive increased the reporting frequency by mandating the Interim Management Statement (IMS). However, only nine years later, the EU announced that it was making quarterly reporting voluntary again arguing that IMSs are redundant as they are unlikely to contain any additional information not already required by the Market Abuse Directive (MAD). The current paper tests this argument empirically. For that it collects data on trading statements from a post-MAD pre-IMS year and uses these statements to predict which IMSs are genuinely incremental firm announcements (‘incremental IMSs’) and not simply substitutes for otherwise disclosed trading statements (‘non-incremental IMSs’). It then calculates three-day abnormal return variability and abnormal trading volume associated with incremental and non-incremental IMSs and it makes three observations. First, the introduction of IMSs coincided with a substantial reduction in other trading statements consistent with a large substitution effect between IMSs and non-periodic trading statements. Second, incremental third-quarter IMSs, but not incremental first-quarter IMSs, exhibit significantly positive abnormal return variability and abnormal trading volume suggesting that the withdrawal of IMSs will involve the loss of some relevant information. Third, higher abnormal return variability and trading volume for non-incremental IMSs, relative to incremental IMSs, are consistent with the argument that a MAD-only regime will ensure the release of most relevant information.

KW - Abnormal Return Variability

KW - Abnormal Trading Volume

KW - Market Abuse Directive

KW - Reporting Frequency

KW - Transparency Directive

U2 - 10.1080/00014788.2014.1002444

DO - 10.1080/00014788.2014.1002444

M3 - Article

VL - 45

SP - 229

EP - 255

JO - Accounting and Business Research

JF - Accounting and Business Research

SN - 0001-4788

IS - 2

ER -