Earnings News and Local Household Spending

64 Pages Posted: 13 Mar 2024

See all articles by Brandon Gipper

Brandon Gipper

Stanford University Graduate School of Business

Laura Gu

University of Chicago - Booth School of Business

Jinhwan Kim

Stanford Graduate School of Business

Suzie Noh

Stanford Graduate School of Business

Date Written: February 15, 2024

Abstract

Using debit and credit card data, we find a one standard-deviation increase in firms’ earnings surprise is linked to a 3% or $5.6 billion increase in aggregate quarterly consumption of local households near the disclosing firms’ headquarters. The effect is more pronounced when earnings news is informative about local households’ wealth, is widely disseminated through media, and is more intensely searched by locals. The change in consumption is concentrated in less expensive goods, such as dining out, and among various local stakeholders, including employees and business owners. Consistent with households not being able to unravel fraud, their consumption reacts even to fraudulent earnings, which reverses only after the fraud is revealed. To corroborate our mechanism, we conduct a nationwide survey of 500 randomly selected households. Nearly 50% of the respondents say their spending decisions are influenced by the financial news of local firms via its effect on local job or investment opportunities. Our findings yield important policy implications of financial reporting on household welfare.

Keywords: Disclosure, financial reporting, local households, consumption, local economy

JEL Classification: D12, D15, D80, D81, E21, M41

Suggested Citation

Gipper, Brandon and Gu, Laura and Kim, Jinhwan and Noh, Suzie, Earnings News and Local Household Spending (February 15, 2024). Available at SSRN: https://ssrn.com/abstract=4727285 or http://dx.doi.org/10.2139/ssrn.4727285

Brandon Gipper

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
(650)498-4350 (Phone)

Laura Gu

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

Jinhwan Kim

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Suzie Noh (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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