Information Transfer of Corporate Disclosure in Pandemic Era

The literature has been argued that investors use disclosure of forecaster firms to improve the information set of peer firms in the same industry. This study shows that disclosed management forecasts provide the information relevant to evaluate peer firms under the COVID-19 driven economic uncertainty. Using management forecast revision and tanshin (mandatory earnings and forecast announcement) disclosure in Japan, we find the positive relationship between the news of management forecast revision of a firm (forecaster) and the cumulative abnormal return of their peer firms. We also find that, in tanshin disclosure, realized earnings growth is positively associated with peer’s cumulative abnormal returns. Additional analysis shows that the information transfer is unique in 2020: we do not find such a positive correlation in the pre-pandemic period between 2001 and 2019. Furthermore, we find that the positive relationship varies across the economy. First, we show the information transfer matters to the COVID-19 exposure. We measure the pandemic exposure by the stock price sensitivity to market return during the pandemic period. We show that the market return of the firms with the greater exposure is more sensitive to the disclosed information. Second, we show that information transfer is observed for firms with serious asymmetric information. The information transfer is pronounced at the firms with high asymmetric information is higher than those with low asymmetric information. Moreover, we find that forecaster’s new information is important when the peer has not disclosed it. Third, we examine whether the synchronicity of business environment between forecaster and its peer affects the information transfer. We measure the synchronicity by the earnings co-movement of each pair. The test shows that the positive association is stronger when the pair’s earnings are comoving. These results suggest the stronger information transfer of management forecasts under the high economic uncertainty.