Maryland Smith Research / December 8, 2023

Earnings Reports Aren't Just for Investors – Consumers Care, Too

Research Shows Earnings Influence Brand Perceptions

Publicly traded companies’ quarterly earnings announcements aren’t just for investors – consumers are also absorbing earnings news and making purchasing decisions accordingly, finds new research from the University of Maryland’s Robert H. Smith School of Business.

The research, from Michael Kimbrough, accounting professor and area chair of Smith’s accounting and information assurance department, looks at how stakeholders beyond investors respond to earnings reports and what that means for firms.

“We wanted to see how consumers respond to earning news – if they change their view of companies, based on the earnings reports,” says Kimbrough. “This research is the first to show that earnings can have real impacts.”

“The textbook approach to earnings is that they are a neutral reflection of what has happened for the firm,” he says. “But we’re showing that earnings actually influence consumers and can propel future outcomes for the firm.”

Kimbrough worked with Smith School graduate Sijing Wei, PhD ’17, now at Creighton University; Frank Wang of St. Louis University; and Neeru Paharia of Arizona State University on the research, forthcoming in The Accounting Review.

They used data from market research firm YouGov, which does daily surveys to track consumers’ purchasing intentions and perceptions of companies in response to marketing campaigns and news stories. Kimbrough and his co-authors zeroed in on the periods right before and right after companies’ earnings announcements to see how consumers responded to earnings news and measured changes in perception.

“We see a statistically significant change in perception in the direction of the change in earnings,” says Kimbrough. “Consumers think more favorably about firms that have good earnings and less favorably on the other side.”

He says they didn’t assume that consumers were proactively looking for earnings news, but rather were learning about earnings passively, like while scrolling through their social media feeds.

“We looked at how widely disseminated coverage of the earnings announcement was because we don’t argue in the paper that consumers are actually seeking this out,” he says. “We argue that earnings have a connotation among the general public, even if they don’t know how to compute earnings. People know that good earnings speak favorably about a firm and bad earnings are unfavorable.”

Kimbrough says the findings show that consumers are digesting earnings information similar to how they process advertising from a company – they passively absorb the information, then use it to make inferences about a company’s products and whether or not to buy them.

Companies should definitely take note of the findings, says Kimbrough.

“They may not have thought of consumers as a potential audience of earnings reports. But we show that earnings influence consumers purchase decisions, so firms do need to be aware of it. How they use that information is up to them.”

Though Kimbrough and his co-authors never encourage firms to use earnings management strategies, he conceded that many do try to manage earnings so that investors respond favorably.

“You could make a similar case that firms will want to have a favorable impression with the consumer,” he says. “Companies should think about the consumer as someone whom you may need to target during that earnings announcement period.”

For example, companies often hold conference calls around their earnings announcements to explain details to investors to try and influence the investor response. They may need to take some other actions, like launching marketing campaigns or offering sales and incentives, to try and influence how consumers might respond to earnings.     

Read the research, “The Brand Value of Earnings,” forthcoming in The Accounting Review.

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