International Research Journal of Finance and Economics ISSN 1450-2887 Issue 12 (2007) EuroJournals Publishing, Inc. 2007 http://www.eurojournals.com/finance.

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Is Timing of Financial Reporting Related to Firm Performance? - An Examination on Ise Listed Companies
Mustafa Dogan Ankara University, Faculty of Political Sciences Ender Coskun Ankara University, Institute for Social Sciences Orhan elik Ankara University, Faculty of Political Sciences Abstract The timing of an annual report announcement is a disclosure decision that manager must make. The users recognize timeliness as an important characteristic of usefulness of accounting information. Previous studies concluded that the timeliness of annual report announcements is affected by good-bad news (measured by profitability), size (measured by total assets), financial risk, and other firm characteristics. This study examines the relationship between a set of explanatory variables (such as good or bad news, financial risk, size, industry) and the timing of annual report releases in ISE listed companies. The results of regression show that timeliness in reporting by ISE listed companies is influenced by their profitability. We find that good news firms (measured by ROE and ROA) release their annual reports earlier than bad news firms. In addition, the results indicate that the timing of annual report releases is significantly affected by company size, increased financial risk, timing policy of past years, and companies characteristics. Keywords: Timing, Timeliness of Financial Reports Release, Profitability, ISE Jel Classification Codes: G14, M49

1. Introduction
Submission of activities as well as information regarding results of activities by companies to shareholders in a complete and correct manner is important for permanency of economy and maintaining welfare of individuals. Active data flow in economy mainly depends on accounting information disclosed to public and thus on financial statements (elik, 2003:139). Delivery of information regarding company activities and their results to shareholders is the most important factor that ensures effectiveness of decisions taken by shareholders. With respect to capital markets, disclosing information1 regarding company activities is the primary element that ensures efficacy of capital markets (elik, 2002).

Enterprise reports, in which information to be disclosed to the public take place, do not include only financial statements and footnotes thereof. Besides financial statements other information and reports are included in enterprise reports. Therefore it is unavoidable that enterprise reports are more comprehensive than financial statements and their footnotes. (Financial Accounting Standards Board (FASB, 2001).

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Financial information users should be able to reach information they need in a timely manner in the case where they are in a position to make a decision or anticipate. Within this context, timing of information is at least as important as the content of that for financial information users. Information users consider that timing of financial reporting is an important complementary factor of accounting information. In addition to this fact, stocks values of publicly held companies are assumed to be formed in the market by primarily being based on such disclosed information. Disclosure time of financial results, which are important indicators of firm performance, is a determining factor of firm value formed in the market. Timing of disclosing financial information is also important for preventing trading activities of insiders, unofficial disclosure of news and market rumors (Ansah, 2000: 241). As compared with developed markets, protective measures and sanctions regarding prevention of trading activities of insiders can be insufficient in emerging markets. Nevertheless, while doing this, companies of emerging markets are in a tendency to disclose less information and to behave slowly as compared with that of developed markets. Influences of timing of financial reporting should be expressly stated to minimize such activities which damage the efficacy of market in emerging markets (Lewentis ve Weetman, 2004:43). Financial information disclosed to public is within the range of profit announcements disclosed to public in a limited sense and financial statements and footnotes as well as all other information in a large sense. In financial reporting applications, disclosure of profit announcements of companies and financial statements to public are not always simultaneous. In developed markets, in which a well-defined system regarding disclosure of profit information by enterprises to public, financial statements are sometimes issued in market after announcement of profit. For this reason, financial statements may not be the first source of information with regard to timing and may become less related to company value formed in the market. In emerging markets however, the first source of financial information, which is delivered to users of financial statements, are mainly constituted from financial statements disclosed to public. For this reason, profit declared in company reports in such markets are far more related to stock exchange value of company as compared with developed markets (Lewentis ve Weetman, 2004 43). In most markets a limit is determined regarding disclosure of financial information in order to ensure that financial information users are able to reach financial information on time. For example, according to the regulations of U.S. Securities and Exchange Commission (SEC), financial statements should be disclosed to public within 90 days after the end of financial year. This term is determined as 45 days for quarterly reports. Similar terms are identified for other information to be disclosed. In Turkey, according to the 48 Clause of Capital Markets Boards (CMB) Communiqu with Serial: XI and No.: 1 on Principles and Rules of Financial Statements and Reports in Capital Markets, detailed balance sheets and income statements as well as independent audit report are sent to stock exchange by companies having active stocks in stock exchange within 10 weeks following the end of accounting period in order to be disclosed to public provision takes place. Intermediate financial statements however, according to the 10. Clause of Capital Markets Boards (CMB) Communiqu with Serial: XI and No.: 3 on Principles and Rules of Intermediate Financial Statements in Capital Markets, should be sent to the stock exchange with detailed balance sheets and income statements of 6 months operating period, being independently audited, within 6 weeks (8 weeks for banks) following the end of accounting period, and with detailed balance sheets and income statements of 3 and 9 months operating period, not necessarily being independently audited, as well as their footnotes within 4 weeks (6 weeks for banks) following the end of accounting period in order to be disclosed to public. In spite of regulations on disclosure of financial statements to public, company administrators are in a flexible position with respect to disclosure of financial statements to public. In other words, timing for disclosing financial statements to public is an administrative decision with respect to some points. Flexibility of administrators should be in such a way that financial statements are disclosed prior to the moment they are required to be disclosed and not in a such way that they exceed the identified top limit (in exceptional cases, stock exchange grants time extension to companies in order to disclose financial statements). Use of such flexibility by company administrators with regard to disclosure of financial statements to public depends on some factors. Such factors can be related to

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content of financial statements to be disclosed to public as well as to company specific variables. They may also depend on the character of market in which companies show activity. Company performance is the most important one among these variables and the one with a direct influence on the value of company. In other words, it is the influence of information that whether the information to be disclosed in financial statements is good or bad news on timing decision. Determining factors, which affect timing of financial reporting, is important to calculate the reaction of market to this information. It is necessary to make a distinction between these factors in accordance with developed markets and emerging markets in which companies show activity. Since there is a significant difference between dynamics of developed markets and those of emerging markets, this distinction is necessary. Our study aiming at determining the relationship between timing of financial reporting and company performance for Turkey, which have an important place in emerging market, consists of two sections. In the first section the literature with respect to timing of financial reporting is examined. In the second section, the relationship between timing of financial reporting and company performance in terms of ISE listed companies is examined. In this way it is investigated that whether the fact stating that good news is delivered early but bad news is delivered late, which finds a common acceptance in the literature, is valid for ISE or not. In addition to this fact, the effect of criterion, which is considered to have an influence on disclosure timing other than the content of news, is analyzed in terms of its influence on company characteristics such as level of financial risk.

2. Factors Affecting Time of Disclosure of Financial Statements to Public

Relationship between disclosure timing of companies financial statements and content of disclosed information, and response given by market with respect to this relationship constitute subject of most of examination. It is possible to analyze studies regarding timing of financial statements in two groups. The first group is response made by market with respect to disclosure timing of financial statements (Begley and Fisher, 1998; Chambers and Penman, 1984; Patell and Wolfson, 1982; Kros and Schroeder, 1984; Zeghal, 1984) and the second group is related to variables affecting disclosure timing (Ansah, 2000; Givoly and Palmon, 1982; Chen and Mohan, 1994). Basic assumption of studies, which examine the identifiers of company reporting timing and the disclosure power of this situation in terms of companies stock price changes, is the assumption in which it is assumed that administrators have more information in comparison with shareholders. According to this, information disclosure strategies appear to be the overlapping mechanism of administrators ability to inform outsiders and their and shareholders expectations. Disclosure timing of any financial statements is a decision to be made by administrator with regard to clarification of the public. Administrators have an important flexibility in terms of timing decision provided that disclosing activity results within the permissible period of time (Han and Wild, 1997: 527). Studies carried out shows that this flexibility is significantly used by administrators. For instance, as a result of the questionnaire applied by Chen and Mohan (1994) to top management it was stated that different expected profit levels are important factors for timing decisions made by top management of companies. Lower expected profit level has more effect on disclosure date and intraday time than high expected profit level. For developed markets studies of Givoly and Palmon (1982) and Chambers and Penman (1984), and for emerging markets studies of Begley and Fisher (1998), How, Qi and Wu (2000) Leventis and Weetman (2004) can be given as examples which examine reporting delay hypothesis. As a result of studies carried out, it was concluded that administrators are in a tendency to disclose good news before expected disclosure date but to disclose bad news after expected disclosure date. In the studies it was further concluded that good news and bad news are measured depending on company performance and thus on profitability, and that financial statements of high profit companies are disclosed earlier (Bagnoli vd, 2002; Begley and Fischer, 1998; Chambers and Penman, 1984; Givoly and Palmon, 1982; Kross and Schroeder, 1984). Findings obtained from these studies show that benefits gained through a delay by administrators in disclosure of financial statements are greater than the cost. Similar results are obtained from limited studies carried out for markets. How vd (2000) has

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come to the conclusion that companies, which will disclose good news, are in a tendency to make this disclosure earlier than companies, which will disclose bad news or loss, in China being an emerging market. Another study, which examines timing of financial statements reporting for emerging markets, was performed by Ansah (2000). In this study, in which 47 enterprises out of financial sector were examined, there was a relationship detected between scale, profitability, company age and timing of financial statements. In addition, it was concluded that auditing delay is an important timing delay factor. There are various points of view on why administrators tend to act slowly when it comes to disclosing bad news. Shareholder theory is accepted as the one of the most important points of view. Shareholder theory states that administrators are in a tendency to delay announcements until there is no possibility to hide bad news due to obligations to enlighten the public. In this way, by delaying disclosure of bad news it will be ensured that negative event occurred in the performance of company will be reflected on stock prices later. Thereby administrators can affect shareholders who use stock prices to follow companies. In a similar way, disclosing good news earlier will prevent other resources from counteracting such news. Although delay in announcement date does not exactly mean delay in issuance of news, slowly obtained news will reduce size of markets responses on the date of announcement (Boowen vd, 1992: 401-402). While administrators try to reduce the effect of bad news, issuance of company specific good news by media may affect investors who make decisions based on such news (Boowen vd. 1992: 402). Because delay in disclosure of information will significantly prevent distribution of news, it will be advantageous to delay bad news until issuance of other bad news in the sector. In such a case, delayed issuance of company specific bad news will draw attention to a lesser extent. On the contrary company will be in a tendency to draw attention to a greater extent by issuing good news before its rivals (How vd, 2000:112113). Another factor in late issuance of bad news is that the companies expectations regarding the possibility of arising of good news in this process and thus the negative effect of such bad news will be balanced (Lewentis and Weetman, 2004: 46). Within this framework, in the case where bad news are announced late, the size of response of stock market and media will be able to be reduced, and the size of response of media and market will be greater in the reverse case in which good news is announced earlier. Shareholders, who treat following up company closely is expensive, will show more response in the cases where desired high profit is achieved, and will show less response in the cases where the profit is low. This is important to explain how administrators can draw attention to a lesser extent by delaying the issuance of bad news and can draw attention to a greater extent by early issuance of good news (Boowen vd, 1992: 402). Internal reporting theory suggests that administrators deal with internal performance evaluation. If company performance evaluation is assumed to be related to profit performance, administrators at various stages are in a tendency to delay internal reporting of bad news in company until accuracy of such news are proven or restated. In this way administrators will be able to possess more time in order to prepare replies for criticism and also to prepare a plan to improve low performance. In the literature it is emphasized that this argument is explanatory in terms of administrators tendencies to delay reporting of bad news. On the other hand good news is subject to examination to a smaller extent, and is audited quickly (How vd, 2000: 113). Timing decision of management is based on different administrative causes in two theories and both of these two theories draw attention to the same administrative act in which announcements of bad news are delayed and announcements of good news are urgent. Company features are also effective on reporting delays. Besides timing of financial reporting and the inverse relationship between good news and bad news, other variables affecting timing of reporting are examined in some examinations. Among factors, which affect disclosure time of financial statements, size of company, complexity of activities and efficacy of internal control systems are considered as important (Givoly and Palmon, 1982: 500). It was specified that big companies disclose their financial statements earlier or on time because they possess more sources, good accounting information system and good internal

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control system. Good internal control system is defined as an important factor in delay in reporting because it reduces the time spent by auditor (Ansah, 2000: 241-245). In the study carried out by Givoly and Palmon (1982), in which duration of auditing process is examined based on these three factors, an inverse relationship between duration of auditing process and size of company was found. By the same token a relationship between activity complexity and auditing duration was detected. Accordingly company specific factors may affect early disclosure by extending auditing period as well as independently affect disclosure timing of financial reports during auditing process. In a similar way according to the learning curves hypothesis, company will act to a greater extent in terms of disclosing its financial statements in parallel with its increasing experience. As the company continues its activities and as its accounting employees learn more, inexperience problem which may cause extraordinary delay will be eliminated (Ansah, 2000: 241-245).. In the studies, various variables such as company age, number of shareholders and features of sector in which company shows activity, were examined and meaningful results were obtained from some of those studies. For example, Ansah (2000), Givoly and Palmon (1982) concluded that size of company, Ansah (2000) concluded that company age and Leventis and Weetman (2004) concluded that industrial differences are effective on disclosing timing. One of the companys features, which was examined and may related to disclosing duration, is financial risk levels undertaken by companies. Although it was concluded that companies in a financial difficulty are in a tendency of delayed disclosure in a part of studies performed relating to the relationship between disclosure time of financial statements and financial risk (Whittred and Zimmer, 1984; Lawrence, 1983), a direct relationship between the timing and the tendency to benefit from financial leverage was not found (Ansah, 2000; Carlsaw and Kaplan, 1991). Despite financial risk level can be measured by different methods, they are measured by the ratio of debt / equity. There are two points of view on risk level in the literature. The first one identifies that companies with high debt using ratios will use more care in disclosure timing of financial statements and will behave more accurately than companies with low debt using ratios. According to this point of view companies with high leverage are in a tendency to make investment, which is not optimal, and thus lenders request from management to report in certain frequencies in order to evaluate long term financial performance and status of company as well as they add coercive conditions for administrative activities to lending agreements. Moreover, depending on partnership of companies, auditing processes at different levels may be requested from different companies. The other point of view identifies that as debt using ratio increases reporting timing will also increase due to two reasons. The first reason is that if indebtment ratio, which is considered as an indicator of financial status of company, is high, failure possibility of company will increase and thus auditors will make a careful and long term auditing due to this increasing possibility in order to minimize legal liability. High indebtment ratio will increase failure possibility of company and thus auditors will study on financial statements, which will become more unreliable than normal conditions, in such companies. In this case auditing period will increase and disclosure of financial statements will extend. The second reason is that especially in the cases where the number of lenders are high, auditing of debts will take a longer time than that of equity (Ansah, 2000: 244). Lawrence (1983) examined whether there is a relationship between financial difficulty, which is an indicator of company performance, and timing of reporting or not with respect to a sampling composed of 58 companies. In the study, in which the studies based on financial ratios in anticipating financial difficulties will depend on the assumption suggesting that financial statements will be obtained on time, a result stating that companies in a financial difficulty issue their financial reports too late. In the same way Whitred and Zimmer (1984) concluded in their study that enterprises in financial difficulty experienced a delay in auditor approvals 3 years prior to the date on which such failure occurred. In the study it was detected that enterprises experiencing a financial failure had been showing delayed actions with regard to issuance of their financial statements at least two years prior to the date on which failure occurred, and it was specified in the same study that such delayed actions can be used as an criterion when making a distinction between successful / unsuccessful companies.

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Another factor related to reporting period is sectoral dynamics. Companies, which dislike penetration of rival companies into the market, will be comfortable in terms of timely submission of information demanded by market. There are limited findings regarding this hypothesis which is known as ownership costs. Basis of studies carried out in this subject are created by hypothesis in which disclosing decisions of companies are affected by declarations which may damage to competitive position of the company in the market. Companies possess incentives that not to disclose information which will reduce their competitive positions. Nevertheless, this disclosing decision is sensitive depending on feature of competition, and especially on presence of rivals or possibility of penetration of rivals companies into the market, and on the competition power of company in terms of price or long term (Healy ve Palepu, 2001:424-425). Complexity degree of company activities is one of the elements which may affect timing. Complexity of company activities depends on regions and fields in which company shows activity and diversification of product and market lines and is important in terms of long auditing periods. As a result of studies it was ascertained that there is a parallel relationship between activity intensity and delay in auditing. For instance Givoly and Palmon (1982) concluded that there is a relationship between ratio of stocks / total assets that they used as criterion for activity complexity and disclosure time. According to the study carried out by Carlshaw and Kaplan (1991) the relationship between sectoral dynamics and delay in auditing (thus delay in reporting) was examined. In the study, which is based on distinction between financial and non-financial sectors, it was stated that it is expected that delay in auditing process will be less in financial sectors because in such sectors very limited number of stocks or no stocks are used and so auditing period is shortened by reducing auditing complexity. Bowen vd. (1992) considered unexpected delay in reporting as a deviation from the previous year and they examined the relationship between timing of profit announcements and content of these announcements in their studies in which they used quarterly financial reports for the term including 1987 crisis, and they compared the results with that of Chambers and Penman (1984). According to this, generally coherent results with previously performed studies were obtained. However, in contrast to previously performed studies, it was concluded that the group, which is composed of companies making early reporting, issues bad news on the average. This result is an opposite result comparing with the results of previously performed studies. This result shows that timing decision of some companies in some times is affected by request of them in terms of minimizing response of shareholders to bad news. For this group, external effects are more dominant than any internal effect in terms of reducing the effect of bad news (Bowen vd,1992: 420) Soltani (2002) separately examined annual financial statements and consolidated statements by making a distinction between companies included and not included in a group in the study in which delays in reporting and auditing in France were researched. In the study, where generally concluded that delays in reporting decreases with each passing year, it was examined if there is a significant difference between groups. In the study, in which it is determined that companies being included in a group disclose their reports earlier than companies not included in any group, three possible reasons of aforementioned aspect and of why group companies are in a tendency to submit financial reports urgently with each passing year. The first reason is that disclosure of information on time makes the company incur more costs, and that group companies can easily reach financial sources by neglecting these costs and thus expediting the process. The second reason of why group companies make early disclosures is that international investors, especially institutional investors are more active in group companies. Financial policies relating to groups entering into other international stock exchanges are considered as another possible factor which may have a role on early disclosure by group companies (Soltani, 2000: 231-234). In the study of Leventis ve Weetman (2004) identifiers of disclosure timing of financial statements of companies not included in any group were examined and effects of factors such as good and bad news as well as size, market entering obstacles and competition on timing were researched. In the study, in which the ratio of delay to difference between the end of inspection of period from the end of auditing process to issuance of statements and legal period, in other words

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optional delay ratio is defined, good news and bad news are accepted as important variables which explain savings of investors from information costs and property costs reporting timing. Bagnoli vd. (2002) examined the difference between dates of voluntarily disclosed and expected profit reports and dates of actual reporting. In the study, 4434 companies and quarterly reports are included in the analyze from 1995 to 1998. In the case where companies make disclosure in periods after their expected reporting dates, it was concluded that reported profits include bad news on the average. Surprisingly, it was concluded that average profits decrease by one cent per each delay day. In the study, in which market response was also examined, it was acknowledged that investors show reaction when expected reporting time are exceeded and this reaction appears more significantly during the next working day. Although relationship between disclosure times of financial statements and company performance, and as well as market response against this relationship have been examined since 1970s, no sufficient findings have been determined for emerging markets. This situation can be resulted from several reasons. These reasons mainly arise from structure of emerging markets. In addition to this, unreliable data by which correct results will be achieved in markets including Turkey, can be considered as another reason of such delay. As a management decision, disclosure timing of financial statements and identifying their dynamics will contribute correct completion of acts of emerging markets as well as companies which show activity in such markets. With this regard Turkey is a correct example for emerging markets. Analyze of the structure in Turkey will provide important clues for other emerging markets.

3. Research Model and Variables

Early disclosure times of financial statements were used in order to measure disclosure time of financial statements of companies. For this purpose, 2005 disclosure times of financial statements and data of financial statements of 249 companies having active stocks in ISE and other data were used. Banks and investment trusts with different financial reporting systems were not included in the scope of the study. Disclosure times of financial statements and footnotes of companies having active stocks in ISE were previously determined by ISE. These dates are disclosed to the public before end of the period. Since compulsory disclosing times for consolidated and nonconsolidated financial statements are different from each other and due to the thought which suggests that this difference will reduce the reliability of criterion in which disclosing timing of financial statements is accepted as the period from end of financial year to disclosing time, criterion of number of days from end of financial year to disclosing time has been established to give an answer for the question of how early financial statements are disclosed from the compulsory disclosing dated in the model. For example, assume that the compulsory issue date is April 15, 2005 for nonconsolidated statements and if financial statements of A company are disclosed on April 10, 2005, then disclosing time is not the 100 days, which is to be calculated from December 31, 2004, but it is the 5 days, which is to be calculated from early disclosing date. In this way it is aimed at creating a uniform criterion for companies which disclose consolidated and nonconsolidated financial statements. Early disclosing (EA) time is defined by calculating number of disclosing days prior to this date which is determined as disclosing timing of financial statements of companies. EAi = EAis EAia Where; EAi = number of early disclosing days of company i, EAis = last date of disclosure for company i, EAia = date on which company i makes disclosure. In order to show the relationship between early disclosure of financial information of companies to the public and financial performance of companies, it is required to correctly define and measure financial performance. Numerous variables are used in the literature in order to measure

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financial performances of companies. For instance, variables such as change in return on assets (ROA) relative to the previous year (Givoly and Palmon, 1982; How vd, 2000), return on equity (ROE) and its change relative to the previous year (Leventis, 2004), return expectation in accordance with 5 year average growth relative to the previous year and return (Givoly and Palmon,1982), return on assets adjusted in accordance with indsutry (Leventis, 2004), return on capital employed (ROCE) (Ansah, 2000) are used as an indicator of good news and bad news. Contribution of each criterion to the model and disclosing powers were tested in the model and the best suited performance criteria were found to be the return on equity (ROE) and change in net return (CNR). In previous studies it was shown that company features are important for early disclosure of financial statements (Ansah, 2000; Givoly and Palmon, 1982). Financial risk (FR), change in financial risk (CFR), size (S), sector (DSH), transaction ratio (TR) and free float rate (FFR) variables are used in order to show relationship between early disclosure of financial information of companies and company features. Results obtained from previous studies regarding disclosure times of financial statements of companies are given in the table 1.
Table 1: Variables used in previous studies and obtained results
Good News Bad News ROCE ROA Good, bad news ROE ROA CNR Profitability HBK HBK DHBK Good and bad news -Scale Asset Sale PD Asset Financial Risk B/O o Industrial Difference SFK V Activity Complexity FAS S/A SB + +0 /S -* Traded Value

Ansah (2000) Givoly and Palmon (1982) Chambers and Penman (1984) Leventis and Weetman, (2004) How vd.,(2000) Chen and Mohan 1994) Begley and Fisher (1998) Kros and Shroder (1984) Boowen vd 1991 Bagnoli vd. (2002)

GS

-*

Whittred and Zimmer FS v (1984) Lawrnece (1983) * noncritical relationship at the level of 0,05 PD; Market value; /S Annual traded value / number of issued stocks; ROCE: Return on capital employed; FAS: Number of Activity Field; GS: Required Capital for Investment; SB: Sale Growth; S/A; Stocks / assets; SFK: Sectoral difference dummy variable; FS: Financial Difficulty; B/O: Debt / Equity; CNR: Change in net return with respect to previous year; DHBK: Change in return per stock with respect to previous year; I: Direction of Relationship

It was determined that level of financial risk taken by companies in market is related to disclosure time of financial information. Debt / equity ratio is used in the literature to measure financial risk levels of companies (Ansah, 2000). In the model, financial risks (FR) of companies were calculated by using Total Debt / Equity ratio of 2005 term. Since it was considered that the important thing is not only the level of financial risk in the current period but also the change in financial risk, change in financial risk (CFR) is included in the model by calculating debt / equity ratio of 2004 year and change in debt / equity ratios of 2005 year. Another factor that may affect timing of financial reporting is size of companies. Financing reporting systems of companies are more related to size of companies in emerging markets such as Turkey than in developed markets. This is because more sources can be allocated by big companies for financial reporting systems. Total assets of company as at the end of financial year are frequently used in the literature as indication of scale (Ansah, 2000; Carslaw and Kaplan, 1991; Davies and Whitred, 1980; Givoly and Palmon, 1982; Leventis, 2004). Size of companies (S) were measured by total assets of companies in the model. Logarithmic value of assets total was used to increase explanatory power of variable. Sectoral differences are one of factors examined in studies. For example Givoly and Palmon (1982) concluded that industrial differences are effective on delay in reporting. In the same way Carslaw and Kaplan (1991) included sectoral differences as dummy variable in their study in which auditing delay is examined. In order to examine relationship between sector in which companies show

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activity and disclosure times of financial information, sector in which companies show activity (DSH) is included as a dummy variable in our study. Companies formulate policies with respect to disclose financial information in order to increase welfare of shareholders by reducing costs that they incur when accessing information by means of their own efforts. Leventis (2004) suggests that the maximum saving will be achieved at companies, which effect the maximum traded value and thus there may be a tendency in companies having high traded values to disclose information early, and in the same way there may be a tendency in companies having high free float rates to disclose early. In this study Leventiss (2004) approach was followed, and the ratio of annual traded value / number of issued stock was used as and transaction ratio (TR) in order to examine whether transaction ratio and free float rate are related to early disclosure or not. Some effects from organizational structures of companies can be mentioned when companies disclose financial information to the public. Factors such as effective working of accounting departments of companies, efficacy of auditors, complexity of activities etc. have direct influence on disclosure times. Besides these, yearly habits of companies regarding disclosure time may affect timing. These factors are not included in the model one by one. The most important reason of this situation is that these effects are immeasurable. These factors, that cannot be included in the model one by one, are involved in the model as early disclosure time (EAt-1) of previous period by considering that financial statements of companies belonging to previous years take place in the disclosure times. Our basic assumption here is that structural effects, which affect the times that companies disclose their financial statements to the public, had also significant influence on previous years, and that if accounting department of company does not effectively work on producing financial statements then it did not work effectively in the previous periods, either.

4. Research Findings
4.1. Explanatory Statistics Complementary statistics regarding variables involved in the model, which is created to show the relationship between early disclosure of financial statements by companies to the public and financial performance of companies, are as follows:
Table 2:
Average Median Maximum Minimum SH Skewness Kurtosis Total

Descriptive Statistics
ROE 0.10947 0.0782 32.3743 -16.556 2.34109 9.11888 156.479 27.2575 CNR -4.08879 0.0366 63.2862 -946.44 61.2656 -14.763 226.805 -1018.1 CFR -8.24325 0.0326 115.908 -2110.2 134.311 -15.482 242.859 -2052.5 FR 1.12688 0.7837 122.722 -114.68 12.1368 -0.3747 80.0314 280.592 EAt-1 4.37149 0 50 -26.25 12.3949 0.90673 4.11106 1088.5 S 19.1197 18.9173 24.8776 13.435 1.82890 0.67991 3.94908 4760.81 DSH 0.09639 0 1 0 0.29571 2.73526 8.48166 24 TR 4.03044 2.5447 30.222 0.0347 4.45249 2.25808 9.75295 1003.57 FFR 0.36105 0.31 0.99 0.01 0.20644 1.03589 3.92337 89.9 EA 11.5542 4 64 0 14.7721 1.42777 4.40104 2877

In order to ensure that the results of the model are reliable, presence of econometric problems was tested and eliminating methods were applied. For this purpose, presence of internal relation and varied variance was tested and it was determined that whether internal relation is a problem or not in the model. In order to eliminate varied variance problem, troubleshooting option of estimating software (Eviews 5.0) was used in the model, which is formed depending on section data set. 4.2. Findings The model, which is created to show the relationship between early disclosure times and financial performances of companies, was estimated by the method of least squares. Estimation results are given in the Table 3.

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Table 3: Results of Multi Regression Mode
EA Least squares 1 249 249 Coefficient 1.341483 0.049245 0.002308 0.089912 0.868291 0.426962 -1.91E+00 -0.33873 3.257787 0.60908 0.596049 9.388738 21155.61 -906.3706

230

Dependent Variable : Method: Sampling: Number of observes involv: Independent variables ROE CNR CFR FR EAt-1 S DSH TR FFR R2 Corrected R2 S.E. Regression Residual sum of squares Log probability

Standard Error 0.592855 0.016145 0.000502 0.066286 0.061382 0.069061 1.33E+00 0.141437 2.808336 Average dep. exists S.S. dep. exists Akaike info criterion Schwarz criterion Durbin-Watson statistics

t-Statistics 2.262749 3.050185 4.599704 1.356412 14.14575 6.18242 -1.44109 -2.39492 1.160042 11.55422 14.77213 7.352374 7.479511 1.96448

Importance Level 0.0245 0.0025 0.0000 0.1762 0.0000 0.0000 0.1509 0.0174 0.2472

It was determined that explanatory power of model, which was tested in accordance with the method of least squares, is sufficient (R2: 0.60908; Corrected: R2: 0.596049) for section data set. According to the model result, there is a meaningful relationship between early disclosure of financial statements by companies and financial performance of companies. There is a positive relationship between variables of ROE (0.0245) and CNR (0.0025), which are indications of financial performances of companies, and early disclosure times. According to this, when financial performances of companies are high companies are in a tendency to disclose this situation to the public early. Relatively early disclosure of financial results by companies with high performance to the public has a main purpose to increase prices of stocks. Based on this relationship as companies delay disclosure of financial information (financial results) and provided that other conditions are fixed, then this means that possibility of low financial performance is high. These results are consistent with the results obtained from previously performed studies (Kros and Schroeder, 1984; Chambers and Penman, 1984; Begley and Fisher,1998; Ansah, 2000; Lewentis and Weetman, 2004). In addition to this, it is acknowledged that previous habits of ISE listed companies regarding disclosure times of financial statements have an important effect. These effects, which is measured by the EAt-1 variable in the model, show that there are structural influences affecting disclosure times of financial statements by companies. In a similar way with financial performance, there is also a parallel relationship between change in financial risk levels of companies and early disclosure times. No relationship could be found in the model between risk level of current year and early disclosure time. With this regard similar results with previous studies were obtained (Ansah, 2000). However, early disclosure takes place when financial risk of companies reduces with respect to previous year. Financial risk level can be correlated with performance. Therefore, obtained results support the point of view which suggests that high financial leverage ratio will increase the probability of failure a company and thus auditors will audit more carefully and within a longer period of time due to this probability in order to minimize legal liabilities, and that in the cases where the number of lenders are high, auditing of debts will take a longer time than that of equity and thus period of auditing process and reporting time will increase (Carlsaw and Kaplan; 1991). Another result obtained from the study is that as size of company increases, tendency to disclose financial information early also increases. The relationship between size of companies and early disclosure tendency is mainly based on the fact that big companies allocate more sources for financial reporting activities. Since big companies allocate more sources and therefore this allocation

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influences all parts from information infrastructure to human resources, early disclosure takes place. As a matter of fact these found results support results obtained by Chambers and Penman, (1984), Ansah (2000), Lewentis and Weetman (2004). Transaction ratio has an inverse relationship with early disclosure time. As transaction ratio increases then so does the reporting delay. In other words, it contradicts with the suggestion by Leventis ve Weetman (2004) that the maximum saving will be achieved at companies, which effect the maximum traded value and thus there may be a tendency in companies having high traded values to disclose information early but no empirical findings were found by them. No meaningful relationship could be found between free float rate (FFR), which is used as a second variable to test cost saving influence, and disclosure time. Influences of sectoral differences on reporting timing could not be observed. This result does not support the point of view of Givoly and Palmon (1982) that timing of financial reporting could be affected by sectoral differences. The fact that disclosure timing of financial statements of ISE listed companies is not influenced by sectoral differences is specific for ISE listed companies.

5. Result
The most important sources that companies submit to their shareholders regarding their activities are financial statements and footnotes that they disclose to the public. Content and accuracy of information disclosed to the public are important. Submission in a timely manner is as important as the content and accuracy of financial statements. Although it is compulsory to disclose financial statements to the public within a certain period of time, the timing of information disclosure is used as an administrative tool by company administrators. Therefore companies are influenced by investor profiles and stock prices. Factors affecting disclosure time of financial statements by companies are specified for developed markets. These factors should be tested whether they are different or not for emerging markets. A positive relationship between company performance and disclosure times of financial statements by companies to the public and between change in risk level and disclosure times of financial statements by companies to the public was also found in the model in which the relationship between disclosure times of financial statements by companies to the public and company performances is measured for ISE listed companies having important place among emerging markets. In other words, companies are in a tendency to disclose good news to the public as early as they can, but to disclose bad news to the public as late as they can. In addition to these, disclosure times of companies are influenced by previous habits when other conditions are fixed. Previous habits of companies are based on their structure regarding financial reporting. It was determined that early disclosure times are not related to sectors in which companies show activity but size of companies affects this.

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