1. DISCUSSION: Jeff Callen Analyzing Late SEC Filings for Differential Impacts of IS and Accounting Issues by Cao, Calderon, Chandra, and Wang 1

2. 2 Objectives of Study Examine the overall market reaction to the announcement of SEC late filings Examine the market reaction differentially conditioned on the expressed reason for the SEC late filing

3. Maintained Hypothesis IS issues have the potential to impact the entire organization and its financial reporting processes Therefore, expect the market to react more strongly and negatively to IS than other reasons for filing delay 3

4. 4 Empirical Findings (1) Market reaction to the announcement of SEC late filings generally negative (but more negative for smaller firms and firms with less analyst coverage) More negative market reaction for filing delays caused by IS issues than other issues (including accounting quality, SOX implementation and GC and SEC quarterly)

5. Empirical Findings (2) Greater market reaction for 10-Q’s relative to 10-K’s Other than IS (with the exception of SEC and 10-Ks), no other negative filing delay reason is significant in the multivariate analysis 5

6. 6 Issues to Consider The Maintained Hypothesis Aggregation Market Reaction Tests Other

7. 7 The Maintained Hypothesis The authors document that IT and IS are pervasive in corporate reporting suggesting that IS induced delay sends a stronger negative signal than accounting quality, for example The authors fail to cite alternative literatures showing that Accounting Quality, GC and SEC investigations are often equally pervasive The authors should really have a more neutral unsigned maintained hypothesis

8. 8 Aggregation Technical Problems include IS but also other issues (e.g., telecommunications). How are we to know if the issue is really IS? One could argue that any one of the following (or a subset) is an accounting issue: Accounting Quality, Auditor Related, Going Concern, SOX implementation, SEC investigations

9. 9 Market Reaction Tests The authors use a standard parametric t-test on excess daily returns to measure market reaction to non-filing announcements This is OK for NYSE firms. For Nasdaq firms, non-parametric sign and rank tests (e.g. Corrado 1989)may be more appropriate

10. 10 Market Reaction Tests (cont) The authors do not control for potential cross-sectional increase in the return variance induced by the event The authors use a CRSP value weighted index as their baseline but an equally weighted index is better specified (e.g. Brown and Warner 1980)

11. Issues to Think About How to rationalize some of the counter- intuitive results (GC late filing insignificant and greater 10-Q than 10-K impact) Is there a sample size issue given that sample size is small for IS delay. Outliers?? What is the economic impact of IS relative to other categories? 11

12. 12 Other Issues (1) Are there Industry controls in the multivariate analysis (IC not enough)? Are the firms that give no reason different from those that do? (Sample selection) Are the firms that give more than one reason different from those that give one?

13. Other Issues (2) What did the authors do to eliminate outliers? Providing sample stats (Table 2) by SIC code and year not overly informative Low R-squared’s 13

14. Future Research Does non-familiarity with the nature of the surprise, as in IS, yield a more negative delay surprise? Do late filers in fact perform worse than on-time filers? Do IS-troubled late filers perform worse than other late filers? 14