The Securities and Exchange Commission (SEC) has mandated new disclosure requirements in Form 8-K, which became effective on August 23, 2004. The SEC expanded the list of items that have to be reported and accelerated the timeliness of these reports. This study examines the market reactions to 8-Ks filed under the new SEC regime and investigates whether periodic reports (10-K/Qs) became less informative under the new 8-K disclosure rules. We observe that the newly required 8-K items constitute over half of all filings and that most firms disclose the required items within the new shortened period (four business days). We find that all disclosed items (old and new) are associated with abnormal volume and return volatility around both the event and the SEC filing dates, and some items have significant return drifts after the SEC filings. Surprisingly, we find that the information content of periodic reports has not diminished by the more expansive and timely 8-K disclosures under the new guidance, possibly indicating that investors may use periodic filings to interpret the effects of material events that had been disclosed earlier.
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Throughout the paper references to unsigned market reaction measures refer to abnormal trading volume and abnormal stock price volatility.
SEC financial reporting release no. 34 (1989).
Proposed rule: Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date, release no. 33-8106, release no. 34-46084 (June 17 2002).
Filings of 8-Ks for semi-voluntary items are triggered by the firm’s voluntary disclosure of material events. These include “Results of Operations” and “Regulation FD Disclosures.”
In 2003 the SEC promulgated Regulation G (SEC release no. 33-8176) mandating the furnishing of a Form 8-K within five business days of any public disclosure related to fiscal period results of operations.
Bernstein (2004) points out the complexity of certain transactions and the time it would take to analyze them, determine the necessity of an 8-K, draft the document for SEC submission, review with relevant parties, and file. He hypothesizes that the shortened period will lead to lower quality reports and the sheer increase in Form 8-K filings will reduce the information content of the 8-K filings.
Focusing only on the post-2004 period enables us to examine the reaction to various reported events separately. While we do have the data on the filing and event dates of 8-K filings prior to August of 2004, the current database does not reliably separate these earlier filings by the event being reported.
For example, when firms disclosed a problem with option backdating in their Form 8-K, they rarely provided estimates of the likely effects of the restatement on earnings and the financial statements. Market participants found out these effects only in subsequent periodic filings.
We do not examine amended disclosures by Forms 8-K/A, 10-K/A, or 10-Q/A.
The database is available through WRDS or directly from S&P and includes all GVKEYs where the market value of the firm’s equity at quarter-end exceeded $1 million.
The Charter Oak PIT database is a monthly snapshot of what Compustat users would have access to in the Compustat database during that month. It is available through WRDS. For a description of the database see Livnat and Mendenhall (2006).
The category information for the earlier filings is present in the database but is not reliable.
There are only nine instances where a company filed two 8-Ks simultaneously with different event days. We treat these 8-Ks as separate observations.
We do not examine the abnormal stock returns around the filings of periodic reports because unlike the majority of 8-K filings they contain multiple and multi-directional signals.
All days specified in this section refer to business days unless noted otherwise.
The library is at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.
The patterns of timeliness reported in Table 2 remain the same when examining the full sample (including more than one event per Form 8-K).
In each calendar year we do see an abnormally high number of filings in late December (for example, December 20 and 21 in 2007). These filings are dominated by those reporting entry into material agreement or election/departure of directors.
“Contemporaneous” here is defined to mean that there was a periodic filing in a period starting from one week before the 8-K filing and ending one business day after.
In some instances a firm refers to the modification of securities holders’ rights as the material definitive agreement itself. In those cases, item 1.01 in the 8-K contains a lengthy discussion on the modification of rights and item 3.03 simply refers to discussion in item 1.01.
For robustness we examine a subsample of 8-Ks where no periodic filing was made in the next 90 days and find similar results (with larger drift magnitude for the two negative items mentioned above). Similarly we examine the 30 and 60 day drifts (30 day drift) only for a subsample of 8-Ks where a periodic report was filed between 60 and 90 (between 30 and 60) days subsequently and again find significant drift results for several of the events (although number of observations is small).
We imposed an additional data validity requirement on the sample for analysis in this section, deleting the extreme top and bottom 1% of all filing date abnormal volume and abnormal volatility observations. Without this restriction the results are even more pronounced.
We obtain similar results for abnormal volatility analysis although some statistical significance is lost in the analysis of small firms.
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The authors gratefully acknowledge the filing dates data provided by Standard & Poor’s Filing Dates Database.
See Table 7.
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Lerman, A., Livnat, J. The new Form 8-K disclosures. Rev Account Stud 15, 752–778 (2010). https://doi.org/10.1007/s11142-009-9114-7
- Form 8-K
- Stock market response