The information content of interim financial reports : U.K. evidence
The aim of this study is to investigate whether the public release of interim financial reports in the United Kingdom conveys information that affects share prices. The major objective for reporting the financial affairs of business enterprises is assumed to be the provision of information to help investors make investment decisions. Interim reports fulfil an important role as a source of frequent information regarding the events in the business enterprise which could give investors some indication about the risks and uncertainties attached to a particular firm's cash flows. Accounting data, therefore, is assumed to be part of the broad market information set that is utilised in establishing prices. The study is carried out in the context of a semi-strong form market efficiency since the announcement of interim earnings puts the information in the announcement in the public domain. An efficient securities market impounds price relevant information into prices instantaneously and without bias. Changes in security prices therefore reflect the flow of information to the market information set utilised in establishing prices. The information in interim earnings can therefore be established if security prices change on the public release of the earnings data barring any other price sensitive information at the same time period. The major finding in the study is that interim accounting reports have information contents which affect price activity on the day of release. It is argued that accounting policy makers have incentive to provide economic benefits by recommending the preparation of quarterly reports by firms.