Cost behaviour and reporting frequency during the COVID-19 outbreak

Abstract

This paper examines the effect of financial reporting frequency on cost management decisions during the COVID-19 outbreak in the first half of 2020, when firms had to make broad changes to their cost structures. Using the European setting, we find that quarterly reporters had more elastic cost structures relative to semi-annual reporters, meaning they had a larger change in cost for each change in sales. These differences existed already before the pandemic but became more pronounced during the crisis, consistent with our predictions based on managerial learning and monitoring pressure. When allowing for cost asymmetry, we find that our results are mainly driven by firms with decreases in sales and that quarterly reporters had anti-sticky costs. Our results are also stronger in highly affected industries. Further, we find that analysts updated their forecasts more frequently for quarterly reporters. Additional analyses also show higher cumulative abnormal returns around half-year earnings announcements and superior firm performance following the outbreak among quarterly reporters, potentially due to greater cost elasticity. With this study, we contribute to the literature on cost behaviour, reporting frequency, and to the emerging stream of accounting and finance studies on the COVID-19 pandemic.