The impact of COVID-19 on investor response to earnings and monthly sales news

The novel coronavirus (COVID-19) situation provides new insights into how macroeconomic shocks affect investors’ processing of firm disclosures. This study focuses on the market reactions to mandatory firm disclosures, that is, earnings announcements and the unique practice of monthly sales disclosure in the Taiwanese stock market, and seeks to provide evidence that timely sales information attracts more incremental investor attention than earnings news after a sudden shock. This study finds decreased (increased) market reaction to earnings news (monthly sales news) during the turmoil period of the stock market than during the pre- and post-turmoil periods. I further explore the effects of stock market conditions on the market reaction to the firm disclosures. I observe that a shrinking market leads to lesser (greater) investors’ attention on earnings news (monthly sales news) than a soaring market does. These results imply that the market demand on the earnings or monthly sales news depends on investors’ relative risk aversion. In addition, this study provides evidence that the trade-off between the market reaction to earnings and monthly sales news seems to be temporary, however, the market reaction to the news had not returned to pre-crisis levels during the sample period of this study. This paper shows that the increased decision usefulness of timely monthly sales information may supplement the decreased decision usefulness of earnings news during a negative macroeconomic event.