Financial and nonfinancial information in interim reports: Determinants and implications

This study examines the determinants and implications of the information disclosed in interim reports submitted to the Helsinki Stock Exchange in the period 1985-93. The determinants part of the work is based primarily on prior literature, firm attributes, and the development of the institutional regime. Specifically, nine classes of determinants of disclosure are derived. These are: (1) governance structure, (2)business risk, (3) market risk, (4) capital structure, (5) stock valuation, (6) firm growth, (7) growth potential, (8) firm size, and (9) yearly dichotomy variables representing the legislative climate. Disclosure was measured by two index classes: (1) overall, including both mandatory and voluntary disclosures; and (2) purely voluntary disclosures. The findings show that, besides the year in which an interim report is published, overall disclosure is related to the measures of business risk, growth potential, and firm size. In addition to these four factors, a firm’s governance structure is significant in the purely voluntary context. In the implications part of the study, the markets’ assessment of various combinations of unexpected earnings and unexpected levels of disclosure was analyzed via (1) cumulative abnormal returns, (2) earnings response coefficients, and (3) bid-ask spreads. The principal finding is that disclosure enhances the communication of earnings information to the market. This is particularly evidenced when the level of disclosure is as expected. The results add to the existing understanding of determinants and the use of accounting information in general and intrayear reporting in particular. Besides that, the findings have both managerial and legislative importance.