Investor’s Inattention and Earnings Announcement Effects on Tomb-Sweeping Day in China

Abstract

This study investigates the relationship between investor inattention and earnings announcement effects around a Chinese holiday called Tomb-Sweeping Day, which, unlike other holidays, is short. Not only is investor attention distracted, which can generate emotional fluctuation, but a large number of listed companies issue earnings announcements within two days before the holiday. Using a sample of listed firms from 2008 to 2019 that released earnings announcements on Tomb-Sweeping Day, we first find that earnings announcement effects exist around Tomb-Sweeping Day, which are not studied in the previous literature. Second, because investors are more inclined to ignore negative earnings information around the holiday, we find stronger post drift from negative earnings announcements than from positive ones, in contrast to the conventional view. Final-ly, we confirm that investor inattention causes earnings announcement effects, providing further evidence to support behavioural finance theory. bad news, and the response is more sensitive to bad news during the holiday. Our research investigates investor reactions to earnings announcements during the Tomb-Sweeping holiday. Unlike joyous holidays such as Easter and Christmas, Tomb-Sweeping Day is a sombre though relaxed occasion for commemorating deceased family and friends as well as taking outings and going hiking. We show that investors easily ignore bad news but are more sensitive to good news because of the sad environment surrounding the