When Corporate Earnings Reports Talk, Consumers Listen

During busy corporate earnings seasons, even a cursory glance at one of the stock exchanges is enough to gauge the impact of quarterly earnings reports. Companies that release good news, especially happy surprises like better-than-expected profits or bump-ups in customer acquisitions, typically see their stocks climb as investors rush in.

We know that quarterly earnings reports are aimed at market watchers, but do the financial disclosures highlighted in these reports influence everyday customers, too?

Suzie Noh, an assistant professor of accounting at Stanford Graduate School of Business, asks this question in a recent research paper. Inspired by corporate finance officers’ claims that financial reporting can attract and retain customers, Noh and her coauthors, Stanford GSB graduates Christina Zhu of the Wharton School and Eric So of MIT Sloan School of Management, analyzed shoppers’ cellphone GPS data and found that foot traffic to firms’ brick-and-mortar shops significantly increases in the days following their earnings announcements.

Media coverage of businesses escalates as they report their financials, and consumers seem likely to patronize firms that they’re hearing more chatter about, Noh explains. And bad news isn’t necessarily all bad: While stores that sell durable goods like furniture, cars, and appliances see customer surges after reporting good news, retailers like restaurants, coffee chains, and fashion brands see more foot traffic as a result of both significantly negative and positive earnings updates.

Consumers may be paying more attention to traditional financial news outlets, Noh suggests. But their awareness may also be driven by the proliferation of social media sites like Reddit, where public discussion of a company’s standing “increases with attention to earnings news — we think there are multiple channels in which these discussions take place,” Noh says.

Tracking Shoppers by Phone

Tapping into the connection between quarterly earnings reports and consumer behavior falls into Noh’s broader research interests, which revolve around analyzing how companies’ financial disclosures impact people outside a typical circle of investors. Noh was intrigued by surveys suggesting that CFOs believe earnings reports are valuable for impressing customers with their firms’ stability and longevity. She wanted to do a deeper dive, but none of the accounting data available was specific enough “to see how things change before and after a tight event.”

To examine shoppers’ behavior in the week before and after a company’s earnings announcement, Noh and her team used an expansive database that tracks the GPS coordinates of tens of millions of cellphones across the U.S. (The database doesn’t contain any personally identifying information about the consumers.)

Noh and her team pulled a swath of data from January 2017 to February 2020, just before COVID-19 restrictions impacted in-person shopping. Their study’s main analyses relied on a sample of roughly 30 million observations spread over more than 224,000 stores across the U.S. operated by 224 firms, including Walmart, Starbucks, Tesla, and McDonald’s.

Noh found that foot traffic to stores increased immediately after a company released its earnings report and peaked several days later. On average, daily store visits increased by 1% in the three days centered around an announcement, 1.7% two to three days afterward, and 2.7% four to five days after the report. Firms that divulged better-than-expected earnings in durable goods sectors saw big upticks in customers. So did companies selling coffee, food, and clothing after disclosing either good or bad news.

Don’t Save Good News for Friday

Noh notes that good and bad news garners more public attention than neutral news, suggesting that consumers’ shopping is influenced by increased attention. Those who reported fiscal year-end results also saw more foot traffic as such numbers yield more attention than quarter-end reports. When it comes to why shoppers jump to buy things like appliances and vehicles after hearing good news from their makers, “there’s some research showing that buyers of durable goods care about the longevity of the firm because they care about the warranties, the availability of maintenance services, spare parts, etc.,” Noh says.

Traffic slowly dropped off in the days following the post-report peak. “These results suggest that consumers quickly update their brand awareness and expectations about a firm’s future prospects based on its earnings news, which leads to an increase in shopping activity after the firm’s earnings announcement,” Noh says.

These findings, Noh says, offer a heads-up to financial managers responsible for crafting earnings statements, helping guide them as they decide which material to release and when. It’s widely known that consumers pay less attention to news on Friday afternoons — Noh’s work backs this up, too — so “if a firm has good earnings to disclose, you’ll want to avoid announcing it then and find a day when you’ll see more consumer attention.”

Using geolocation data is becoming more popular in market research, as it allows for precise tracking of foot traffic, an important measure of consumer spending and brand loyalty. Noh hopes to expand this study to examine the effect increased foot traffic post-earnings has on a retailer’s competitors. “When Starbucks announces positive earnings, how does that affect people visiting Peet’s Coffee — is there any spillover?” she asks. Noh is also looking at whether consumers change their behavior based on how companies disclose their environmental, social, and governance (ESG) goals and performance.

Ultimately, Noh says, she wants to formulate accounting research that uses more than just numbers to paint a better picture of what a snapshot of data actually represents. “It should have some financial aspects, some marketing aspects, and some accounting,” she says. “My goal is to really broaden what we define as accounting research.”