Sleep Disruption and Investor Processing of Earnings News: Evidence from Daylight Saving Time Advances

55 Pages Posted: 25 Jan 2021 Last revised: 30 Jan 2021

See all articles by Tyler J. Kleppe

Tyler J. Kleppe

University of Kentucky - Von Allmen School of Accountancy

Andrew T. Pierce

Oklahoma City University - Meinders School of Business

Zac Wiebe

University of Arkansas - Sam M. Walton College of Business

Teri Lombardi Yohn

Emory University Goizueta Business School

Date Written: January 29, 2021

Abstract

Despite extensive evidence on the effects of psychological and behavioral factors on investors’ processing of accounting information, little is known about how physiological factors affect the investor response to accounting disclosures. Research in neuroscience suggests that sleep disruptions can have profound physiological effects that impair cognition. Motivated by this evidence, we use “spring forward” Daylight Saving Time (DST) phase advances, which have been shown to inhibit cognitive function by disrupting the human sleep cycle and circadian rhythm, to examine the effect of sleep disruption on investors’ reactions to earnings news. We find consistent evidence of a muted reaction to earnings news released during the week following a DST advance. We also find that this effect is stronger when investors are more likely to be trading on earnings news. We find no evidence of a decrease in EDGAR downloads or media attention during this period, suggesting that DST advances affect investors’ information integration, rather than information acquisition. Our inferences are strengthened through a placebo test performed during the previous (i.e., pre-2007) DST phasing regime, and through alternative design choices and robustness tests. Overall, our findings suggest that sleep disruptions affect investors’ ability to integrate value-relevant earnings news into their trading decisions. Our study provides insight into the costs of sleep inadequacy, which has been declared a public health epidemic and is prevalent among professional investors, and informs ongoing policy debates regarding the abolishment of DST phasing.

Keywords: Disclosure Processing, Earnings Response, Sleep Disruption, Daylight Saving Time

JEL Classification: G14, G41, M41

Suggested Citation

Kleppe, Tyler J. and Pierce, Andrew T. and Wiebe, Zac and Yohn, Teri Lombardi, Sleep Disruption and Investor Processing of Earnings News: Evidence from Daylight Saving Time Advances (January 29, 2021). Available at SSRN: https://ssrn.com/abstract=3767211 or http://dx.doi.org/10.2139/ssrn.3767211

Tyler J. Kleppe (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

Andrew T. Pierce

Oklahoma City University - Meinders School of Business ( email )

Oklahoma City, OK 73106
United States

Zac Wiebe

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

Teri Lombardi Yohn

Emory University Goizueta Business School ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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