Do Firms Provide Informative Disclosures in An Environment of Extreme Uncertainty? Evidence from the COVID-19 Pandemic

46 Pages Posted: 11 Jan 2022 Last revised: 29 Jul 2022

See all articles by Changling Chen

Changling Chen

University of Waterloo - School of Accounting and Finance

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance

Victor Xiaoqi Wang

California State University, Long Beach

Betty (Bin) Xing

Baylor University

Date Written: January 10, 2022

Abstract

We study the informativeness of corporate disclosures in an environment of extreme uncertainty by using the COVID-19 pandemic as the setting. During the initial stage of the pandemic, firms had to respond to an unprecedented crisis with little prior experience or guidance from regulators. We find that COVID-19 disclosures in annual reports appeared to have been informative to investors during this period of extreme uncertainty. Using two measures of disclosure quality derived from unsupervised machine learning, we find that the market reacts more strongly to COVID-19 disclosures that are more firm-specific. Understanding firms’ disclosure behavior in an environment of extreme uncertainty has important policy implications and may inform securities regulators on the role they should play in similar situations as the SEC transitions to a more principles-based approach towards disclosure regulation.

Keywords: COVID-19 pandemic, Corporate disclosures, Annual reports, 10-K filings, Textual analysis, Topic modelling

JEL Classification: M40, M41, M48, G14, M21

Suggested Citation

Chen, Changling and Stratopoulos, Theophanis C. and Wang, Victor Xiaoqi and Xing, Betty (Bin), Do Firms Provide Informative Disclosures in An Environment of Extreme Uncertainty? Evidence from the COVID-19 Pandemic (January 10, 2022). Available at SSRN: https://ssrn.com/abstract=4004649 or http://dx.doi.org/10.2139/ssrn.4004649

Changling Chen (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada
519-888-4567 x35943 (Phone)

Victor Xiaoqi Wang

California State University, Long Beach ( email )

1250 Bellflower Blvd
Long Beach, CA 90840
United States

Betty (Bin) Xing

Baylor University ( email )

1 Bear Pl # 78002
Waco, TX Texas 76798-0006
United States
5195909329 (Phone)

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