COVID‐19 Disclosures and Market Uncertainty: Evidence from 10‐Q Filings

Jie Hao and Viet T. Pham

Australian Accounting Review, 2022, vol. 32, issue 2, 238-266

Abstract: We examine whether the quarterly filing COVID‐19 disclosures reduce uncertainty for investors and analysts. We find a negative relationship between COVID‐19 disclosure and return volatility, suggesting COVID‐19 disclosure reduces investor uncertainty. This reduction effect concentrates mainly during the short window following 10‐Q releases and phases out over time. We then detect that industry‐wide COVID‐19 disclosure dispersion is positively associated with return volatility, suggesting high variation of industry‐wide COVID‐19 disclosures reduces information comparability across firms, resulting in increased investor uncertainty. Moreover, we find that COVID‐19 disclosures are positively associated with analysts’ downward earnings forecast revisions and negatively associated with analyst forecast dispersion after 10‐Q releases, suggesting the disclosures reduce information risk even for sophisticated market participants. Further analyses show that COVID‐19 disclosures are negatively associated with future financial and operational performances (i.e., sales, operating cash flow, operating income and ROA). Lastly, we find that the low readability of COVID‐19 disclosure attenuates the negative relation between COVID‐19 disclosure and market volatility. Collectively, our findings suggest that 10‐Q COVID‐19 disclosures contain value‐relevant information that temporarily assists market participants in evaluating the changes in firms’ values in the time of a crisis.

Date: 2022
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