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

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  • D’Augusta, Carlo
  • Grossetti, Francesco

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.

Suggested Citation

  • D’Augusta, Carlo & Grossetti, Francesco, 2023. "How did Covid-19 affect investors’ interpretation of earnings news? The role of accounting conservatism," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322006808
    DOI: 10.1016/j.frl.2022.103504
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    More about this item

    Keywords

    Covid-19; Earnings announcements; Investor uncertainty; Accounting conservatism; Abnormal volatility;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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