Financial Reporting Timeliness and Market Information Efficiency Outcomes

Abstract

This research investigates the underexplored causal relationship between the timeliness
of corporate financial reporting and the subsequent efficiency of market information processing, proposing a novel methodological framework that diverges from traditional event-study
and market microstructure approaches. We introduce the concept of ’Temporal Information
Absorption Capacity’ (TIAC), a metric derived from the convergence of information theory
and behavioral finance, to quantify how swiftly and completely market prices incorporate
the informational content of financial statements based on their release latency. The study
formulates three primary research questions: (1) Does a non-linear, threshold-based relationship exist between reporting delay and market efficiency degradation? (2) Can early signals
of inefficiency, manifesting as anomalous cross-asset return correlations, be detected in the
pre-announcement period of delayed reports? (3) Does the market’s penalization of tardiness
exhibit asymmetric properties contingent on underlying macroeconomic volatility regimes?
Our methodology employs a hybrid computational model combining agent-based simulation
calibrated with historical SEC filing data and a proprietary algorithm for parsing the ’information density’ of financial statements. We construct a unique dataset spanning 1998-2004,
linking EDGAR filing timestamps with high-frequency trades and analyst forecast revisions.
Results indicate a critical threshold of 5 business days beyond the typical filing date, after which TIAC decays exponentially, leading to measurable mispricing. Furthermore, we
identify a ’contagion effect’ wherein delays from firms in central network positions (based
on shared analyst coverage) impair the price discovery of connected firms. The findings
contribute original insights to the literature by re-conceptualizing timeliness not merely as
a compliance attribute but as a dynamic determinant of systemic information processing
health, with novel implications for regulatory policy and real-time disclosure technologies.