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Do exogenous economic crises change investors’ response to earnings announcements?: A detailed review using the data from COVID-19 pandemic

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  • Kale, Arati
  • Kale, Devendra

Abstract

We investigate the impact of an exogenous economic crisis on investors' response to corporate earnings announcements. We use COVID-19 as an exogenous shock as an unanticipated macroeconomic event. Given the general fear and economic uncertainty, the COVID-19 pandemic provides a natural setting to investigate how investors reacted to earnings announcements. Did the investors excessively punish the stock for negative performance (since it confirmed their general fear), or did they reward good performers excessively since beating expectations was especially tough in the crisis? We find that the pandemic exacerbated investors' responses to earnings announcements. We further find that investors' reactions to significant positive earnings surprises were more prominent than to large negative ones. Our results are robust to alternate specifications and parallel trend analysis. We contribute to the literature by providing evidence on how the uncertainty caused by an economic crisis can impact investors’ response to earnings news.

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  • Kale, Arati & Kale, Devendra, 2023. "Do exogenous economic crises change investors’ response to earnings announcements?: A detailed review using the data from COVID-19 pandemic," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    • Handle: RePEc:eee:joecas:v:28:y:2023:i:c:s1703494923000427
    DOI: 10.1016/j.jeca.2023.e00330
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    More about this item

    Keywords

    ERC; Earnings surprise; COVID-19;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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