Corporate governance and the timeliness
of financial reporting: a comparative
study of the People’s Republic of China,
the USA and the European Union
Robert W. McGee and Xiaoli Yuan
Abstract
Purpose – Timeliness of financial reporting is one of the attributes of good corporate governance
identified by the OECD and World Bank. Shareholders and other stakeholders need information while it
is still fresh and the more time that passes between year-end and disclosure, the more stale the
information becomes and the less value it has. This paper aims to examine the timeliness of financial
reporting in the People’s Republic of China and to compare it to timeliness in the USA and the European
Union (EU).
Design/methodology/approach – The timeliness of financial reporting was measured by counting the
number of days that elapsed between year-end and the date of the independent auditor’s report for
Chinese companies listed on the Shanghai Stock Exchange and a selection of public companies in the
USA and EU. Results were then compared to determine whether there was a significant difference. This
study also compares timeliness data on the basis of audit firm to determine whether companies audited
by one of the Big-4 firms are more timely in their financial reporting than are companies audited by
Chinese audit firms.
Findings – The paper finds that Chinese companies took significantly longer to report financial results
than either the EU or US companies. EU companies took significantly longer to report financial results
than US companies. The vast majority of Chinese company audits were not conducted by the Big-4
accounting firms.
Practical implications – Companies that are not timely in their financial reporting practices find it more
difficult to attract capital. Their corporate governance practices are also seen as less than ideal, which
has a negative effect on a company’s reputation within the financial community. Thus, Chinese
companies that are slow in reporting their financial results may suffer negative consequences in terms of
reputation and ability to raise capital, all other things being equal.
Originality/value – This paper is the first to compare the timeliness of financial reporting for the People’s
Republic of China, the USA and the European Union.
Keywords Corporate governance, Timeliness, Financial reporting, People’s Republic of China,
United States of America, European Union
Paper type Research paper
Introduction
Transparency is a very important component of financial reporting. Companies must
disclose anything that might influence the investment decision of an informed investor.
Nothing of consequence may be hidden. This rule is widespread and pervasive. Stock
exchanges require it. Government agencies require it. Various accounting rulemaking
bodies require it, including the Financial Accounting Standards Board in the United States
and the International Accounting Standards Board.
One aspect of transparency is timeliness. Generally speaking, it is better to disclose
information sooner rather than later, although there are some tradeoffs. For example,
DOI 10.1108/15587891211190679 VOL. 6 NO. 1 2012, pp. 5-16, Q Emerald Group Publishing Limited, ISSN 1558-7894
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JOURNAL OF ASIA BUSINESS STUDIES
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Robert W. McGee is
Associate Professor in the
School of Accounting,
Florida International
University, Miami, Florida,
USA. Xiaoli Yuan is
Associate Professor at the
Department of Accounting,
Elizabeth City State
University, ELizabeth City,
North Carolina, USA.
Received: 3 June 2009
Accepted: 21 May 2010