Cost Behaviour and Reporting Frequency During the COVID-19 Outbreak

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 exhibit greater cost elasticity relative to semi-annual reporters, meaning they had larger changes in cost for each change in sales. When allowing for cost asymmetry, we see that our results are mainly driven by firms with decreases in sales and that quarterly reporters reduced their costs more. These results are stronger in highly affected industries. When analysing the speed of earnings announcements, information content of conference calls, and updates to analyst forecasts, we find that managerial learning and monitoring pressure might be potential channels behind our results. Additional analyses show higher cumulative abnormal returns around half-year earnings announcements and superior firm performance in the short-run 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.