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Earnings News and Local Household Spending

Author

Listed:
  • Gipper, Brandon

    (Stanford U)

  • Gu, Laura Lingyu

    (U of Chicago)

  • Kim, Jinhwan

    (Stanford U)

  • Noh, Suzie

    (Stanford U)

Abstract

Using debit and credit card data, we find a one standard-deviation increase in firms’ earnings surprise is linked to a 3% or $5.6 billion increase in aggregate quarterly consumption of local households near the disclosing firms’ headquarters. The effect is more pronounced when earnings news is informative about local households’ wealth, is widely disseminated through media, and is more intensely searched by locals. The change in consumption is concentrated in less expensive goods, such as dining out, and among various local stakeholders, including employees and business owners. Consistent with households not being able to unravel fraud, their consumption reacts even to fraudulent earnings, which reverses only after the fraud is revealed. To corroborate our mechanism, we conduct a nationwide survey of 500 randomly selected households. Nearly 50% of the respondents say their spending decisions are influenced by the financial news of local firms via its effect on local job or investment opportunities. Our findings yield important policy implications of financial reporting on household welfare.

Suggested Citation

  • Gipper, Brandon & Gu, Laura Lingyu & Kim, Jinhwan & Noh, Suzie, 2024. "Earnings News and Local Household Spending," Research Papers 4163, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:4163
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    File URL: https://www.gsb.stanford.edu/faculty-research/working-papers/earnings-news-local-household-spending
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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