CEOs’ financial experience, pessimistic tones in earnings announcements and firm value: evidence during pre-COVID-19 and the COVID-19 pandemic

PurposeOur study examines the association between pessimistic tones in earnings announcements and firm value, as well as the role of chief executive officers' (CEOs) financial experience during the COVID-19 pandemic compared to prior COVID-19 pandemic.Design/methodology/approachChow Test was employed to analyze 2,127 firm-year observations from Indonesia Stock Exchange-listed non-financial enterprises during the pandemic and before the pandemic.FindingsEmploying a Chow test to examine structural changes, we find that the negative relationship between pessimistic disclosure tone and firm value strengthens significantly during the COVID-19 period, indicating heightened investor sensitivity to negative linguistic cues under conditions of elevated uncertainty. Furthermore, our results show that CEO financial expertise mitigates the adverse valuation effect of pessimistic disclosure tone, and this mitigating role becomes significantly stronger during the COVID-19 period. These findings suggest that while investors penalize pessimistic disclosures more severely during crises, they simultaneously place greater weight on credibility-related cues, such as CEOs' financial expertise, when evaluating firm value.Originality/valueOur study contributes to the disclosure and capital market literature by providing formal evidence of a structural change in investors’ sensitivity to pessimistic disclosure tone using a Chow test framework. Unlike prior studies that rely on subsample comparisons, we formally examine whether the valuation effect of pessimistic tone differs structurally between the pre-pandemic and pandemic periods. Moreover, we show that CEO financial expertise mitigates the negative valuation impact of pessimistic disclosure tone and that this credibility-enhancing role becomes more pronounced during periods of heightened uncertainty, such as the COVID-19 crisis.