Stock Market Reactions to Earnings Announcements : the Role of Firm Size During Periods of Economic Uncertainty

Background: Earnings announcements are a crucial source of information for investors and influence stock prices by providing stakeholders with insights into a company ́s financial health. During periods of heightened economic uncertainty, such as the COVID-19 pandemic and the war in Ukraine, market reactions to earnings announcements can become stronger and more unpredictable, opening opportunities for investigation. Purpose: This study aims to examine how the Swedish stock market reacted to earnings announcements and whether these reactions differed between the companies listed on OMX Stockholm Small-cap and Large-cap indexes during the period 2019-2023, which was marked by COVID-19 pandemic and the war in Ukraine. It also aims to explore the impact inflation has on these reactions. Method: To accomplish the purpose of the study, a quantitative analysis was conducted, relying on 2 060 quarterly earnings announcements from 2019 to 2023. The study employed both an event study methodology and Pooled OLS Regression to analyze the data. Conclusion: The empirical evidence shows that large-cap firms experienced stronger market reactions to earnings announcements than small-cap firms during the uncertain period characterized by COVID-19 and the war in Ukraine. Furthermore, the market reactions were generally stronger during periods of heightened uncertainty than in more stable periods. Lastly, a negative relationship was observed between Cumulative Abnormal Returns (CAR) and inflation, indicating that higher inflation weakens market reactions to earnings announcements.