How did Covid-19 affect investors’ interpretation of earnings news? The role of accounting conservatism

D’Augusta, Carlo and Francesco Grossetti

Finance Research Letters, 2023, vol. 52, issue C

Abstract: We examine how investors interpreted earnings news when the Covid-19 pandemic began. We argue the pandemic made investors unsure about the earnings news’ reliability and valuation implications. We compare earnings announcements in early 2020 to those between 2015 and 2019. During Covid, earnings news significantly increased (decreased) post-announcement abnormal volatility (returns), consistent with investors’ struggling to price the news. However, we find that Covid did not have such an effect on firms that had priorly established a reputation for conservative accounting. This suggests that conservatism, whose information effects have been debated by prior literature, alleviated investors’ concerns during the pandemic.

Keywords: Covid-19; Earnings announcements; Investor uncertainty; Accounting conservatism; Abnormal volatility (search for similar items in EconPapers)
JEL-codes: G14 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322006808

DOI: 10.1016/j.frl.2022.103504

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