Battling Uncertainty: Corporate Disclosures of COVID-19 in Earnings Conference Calls and Annual Reports

Abstract

This study examines the informativeness of firm disclosures related to COVID-19 in earnings conference calls and annual reports (10-K) during the first quarter of 2020 when firms face tremendous uncertainty and little regulatory guidance. We find that investors react to COVID-19 related discussions made during the presentation of the conference calls but not to those during the Q&A session. We further find that managers’ tone does not provide information incremental to the COVID-19 discussions. This finding suggests that investors fixate their attention on the overwhelming event and ignore the sentiment signals from firm managers. In our determinants model, we find that the extent of COVID-19 related discussions largely depends on industry membership and time effects, and does not depend on performance and firm characteristics. In our analysis using 10-Ks, we find that COVID-19 related disclosures are associated with short-term abnormal returns, suggesting that these disclosures are informative to the equity market. More interestingly, we find that risk disclosures in the Risk Factor Disclosure (RFD) section in the 10-K do not trigger any short-term market reactions after we exclude the COVID-19 related disclosures, again suggesting that disclosures about the overwhelming event COVID-19 crowd out investors’ attention on other risk information. Finally, we find a negative market reaction to firms that apply for the SEC’s extension on filing deadlines, even though the relief was specifically granted for COVID-19, suggesting that the market generally interprets late filings as negative events, even in scenarios outside of the firms’ control.

Keywords: Coronavirus, COVID-19, Corporate disclosures, SEC’s filing relief, Risk disclosures, Earnings conference calls, 10-K filings, Market reactions, Event studies, Sentiment analysis, Textual analysis

JEL Classification: M41, G14, G18