COVID-19 Disclosures and Market Uncertainty: Evidence from 10-Q Filings

Abstract

We examine whether the quarterly filing COVID-19 disclosures reduce uncertainty for investors and analysts. We find a negative relationship between COVID-19 disclosure and return volatility, suggesting COVID-19 disclosure reduces investor uncertainty. This reduction effect concentrates mainly during the short window following 10-Q releases and phases out over time. We then detect that industry-wide COVID-19 disclosure dispersion is positively associated with return volatility, suggesting high variation of industry-wide COVID-19 disclosures reduces information comparability across firms, resulting in increased investor uncertainty. Moreover, we find that COVID-19 disclosures are positively associated with analysts’ downward earnings forecast revisions and negatively associated with analyst forecast dispersion after 10-Q releases, suggesting the disclosures reduce information risk even for sophisticated market participants. Further analyses show that COVID-19 disclosures are negatively associated with future financial and operational performances (i.e., sales, operating cash flow, operating income and ROA). Lastly, we find that the low readability of COVID-19 disclosure attenuates the negative relation between COVID-19 disclosure and market volatility. Collectively, our findings suggest that 10-Q COVID-19 disclosures contain value-relevant information that temporarily assists market participants in evaluating the changes in firms’ values in the time of a crisis.