Delaying SEC Filings Leads to Negative Returns

Exchange-listed companies are generally required by the SEC to file annual reports within 75 days following the end of a calendar or fiscal year and quarterly reports in 40 days. Failure to do so can lead to a declining stock price.

Exchange-listed companies are generally required by the Securities and Exchange Commission (SEC) to file annual reports (Form 10-K) within 75 days (60 days for large companies) following the end of a calendar or fiscal year. The deadlines for the quarterly 10-Q are generally 40 days for most companies. (Companies with a float—meaning the dollar value of shares available for public trading—of $75 million or less have 90 days and 45 days, respectively, to file.)

Failure to meet these deadlines triggers a requirement to file SEC Form NT and can lead to a declining stock price. A forthcoming study found that the average decline for the five days surrounding the filing deadline for late filers is 2.44%. By type of filing, the drop is 2.93% for late 10-Q filers and 1.96% for late 10-K filers. The returns were measured for companies filing Form NT during the period of 2000 through 2008.

Form NT gives companies a list of reasons to explain why their reports will be delayed. When accounting problems are checked, investors react more negatively to late 10-Q filings. The researchers surmise that this may potentially be due to the lack of audited numbers used in the quarterly reports. As such, investors could be interpreting the reasons for the delay in filing being “significantly more serious than the accounting problems signaled by management’s inability to file a timely annual report.”

Notably, the data also suggests that investors correctly anticipate which companies will fail to file their 10-Q or 10-K within the SEC’s grace periods (five and 15 days, respectively). Shares of these 664 companies decline by 3.51% during the aforementioned five-day window versus a decline of 1.72% for the 1,169 companies meeting the grace period requirements. “Investors do not blithely react to management’s declaration,” conclude the study’s authors.

Stock prices for late filers continue to decline for several months after the NT filing date. The additional drop is 13%, on average, over the following 180 trading days. While accounting problems have a more negative effect initially, post-NT-filing declines are bigger for companies describing the reasons for the delay as uncertain, due to corporate events or due to multiple reasons.

Source: “SEC Filings, Regulatory Deadlines, and Capital Market Consequences;” Eli Bartov and Yaniv Konchitchki; forthcoming, Accounting Horizons.