Sooner or later? A study of report timing

Abstract

This study examines the optimal reporting time a regulator should choose for firms to report their information when the firms' effort choices influence the outcome of projects. Our analysis shows that, the regulator's optimal choice of reporting time to maximize overall efficiency is contingent on a trade-off between motivating a firm's effort to improve the outcome and saving the liquidation value for the creditor to reduce the firm's financing cost. We also find that to induce the firm's effort, the reporting time should be either early enough or late enough-depending on the effectiveness of the effort to turn bad projects into successes. Furthermore, we examine the regulator's optimal choice of reporting time for an economy with heterogenous firms/industries, and we show that the optimal reporting time changes nonmonotonically in the probability of good projects in the economy.