Telling the truth on 9-11: market reactions to corporate earnings announcements

Abstract

In earnings announcements, managers can strategically attribute poor performance to external events. This paper analyzes market reactions to earnings announcements in the wake of a major event: the September 11attacks in New York City. We assess the empirical effect of external events on firms and industries, and classify negative external attributions as justified or unjustified. Our results indicate that truthful negative external attributions are met with a positive market response, suggesting it pays to tell the truth. Thus, we conclude that incremental information was voluntarily disclosed in corporate earnings announcements in the wake of the September 11 attacks.