Corporate Governance and the Timeliness of Financial Reporting: A Case Study of the Russian Energy Sector

Timeliness of financial reporting is an attribute of good corporate governance. 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. Corporate governance is a relatively new concept for transition economies. Prior to the fall of the Berlin Wall and the collapse of the Soviet Union there were no profit-making corporations, no shareholders and no need to report financial results except to the government. All that has changed. In order to raise capital, corporations need to convince potential investors that an investment in their company will be safe. That requires financial reporting standards that can be trusted and financial information that is reported in a timely manner. But the culture of former communist countries is not to disclose information. That mentality is changing as their formerly closed economies open up to investment from the west. This article examines the timeliness of financial reporting in the Russian energy sector. One reason why this segment of the economy was chosen is because it is one of the most important economic sectors. Another reason is because the energy sector has been the recipient of large sums of foreign investment, which presumably means the standards of financial reporting in the energy sector is better than average. The timeliness of financial reporting in the Russian energy sector was measured by counting the number of days that elapsed between year-end and the date of the independent auditor's report. Those results were then compared to the timeliness of financial reporting by non-Russian energy companies to determine whether there was a significant difference in the timeliness of financial reporting. The study found that Russian companies took significantly more time to report financial results than did the non-Russian companies.