Getting It Right Versus Getting It Quick: The Quality-Timeliness Tradeoff in Corporate Disclosure

Wednesday, January 1st, 2003 at 12:00 am by Wally Suphap
Wally Suphap, Getting It Right Versus Getting It Quick: The Quality-Timeliness Tradeoff in Corporate Disclosure, 2003 Colum. Bus. L. Rev. 661

The objectives of quality enhancement and timeliness appear high on the lists of those structuring securities disclosure regulation. That a disclosure regime should be assessed, at least in part, by its ability to promote the delivery of accurate, complete, and reliable information to investors seems almost axiomatic. That such a regime should not, at the same time, induce unnecessary delays, or that it should actually ensure the timely dissemination of information to the capital market, is also a widely accepted criterion for assessment. There are, of course, other criteria for evaluation–the impact of the regulation on the corporate issuers’ day-to-day operations, for example– but none with the salience of these two.

These dual objectives–the delivery of high quality and timely information to the public–have been heavily relied upon by the Securities and Exchange Commission (“SEC”) and Congress to justify recent far-reaching initiatives to reform the corporate disclosure regime. For example, under the stated purpose of “improv[ing] the delivery of timely, high quality information to the securities markets to ensure that securities are traded on the basis of current information,” the SEC has accelerated the filing by issuers of their quarterly and annual reports. In addition, the SEC has proposed a rule that would expand the list of significant events requiring disclosure on existing Form 8-K. Such events could include the entry into or termination of a material agreement and the creation of a material financial obligation. The same proposed rule would also accelerate reporting of Form 8-K to two business days following these triggering events, instead of the existing deadline of five business days or fifteen calendar days, depending on the nature of the event. These SEC initiatives have found congressional endorsement in the Sarbanes-Oxley Act of *664 2002, which, among its myriad directives, calls for additional and prompter current disclosure of certain events.

The pervasiveness of initiatives designed to improve concurrently the quality and timeliness of disclosure suggests that Congress and the SEC view them, to a certain extent, as compatible goals. Indeed, numerous SEC releases have propounded these dual objectives alongside one another, and have highlighted technological advances on information flow to justify the feasibility of producing both faster and higher quality disclosures. Yet, an importantquestion arises as to whether, and to what extent, the objectives of quality and timeliness are in tension with each other. That is, can a disclosure regime realistically aim to achieve both objectives simultaneously? Or, are there significant tradeoffs between these objectives that thwart efforts to concurrently fulfill both?

This section of the Survey aims to explore the nature and extent of this quality-timeliness tradeoff, and, in the process, to analyze the effectiveness of various approaches to tackling it. In order to provide a backdrop for the discussion, Part II surveys the historic emphasis on quality and timeliness in securities regulation. Part III reviews the regulatory framework of the disclosure regime and highlights recent congressional and SEC initiatives, including the disclosure-related provisions of the Sarbanes-Oxley Act and amendments to Form 8-K, each aimed at concurrently achieving the two objectives. Part IV distills examples from these recent SEC initiatives to identify the nature and extent of the tradeoff between the two objectives. Part V introduces and critiques the SEC’s efforts designed to minimize the tensions, and Part VI sets out a number of recommendations. This section of the Survey concludes by positing that, while the goals of quality enhancement and timeliness are individually valid, each must be balanced against the other. Accordingly, securities regulators and standard setters, in refining and interpreting the disclosure requirements, would be well-served to recognize the importance of the tradeoff and strike an appropriate balance.

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