March Market Madness: The Impact of Value‐Irrelevant Events on the Market Pricing of Earnings News

Abstract

Each year, the NCAA basketball tournament (March Madness) is a daytime distraction for millions of people, providing a largely exogenous shock to investor attention. We investigate whether March Madness influences the market response to earnings by diverting investor attention away from earnings news. We find that the price reaction to earnings news released during March Madness is muted. This result generally holds across several samples and additional analyses. We also find that the result is more muted for low institutional ownership firms, consistent with the effect being driven by less-sophisticated investors. Furthermore, we find that it takes the market 30 to 60 days to correct for the distraction effect. Overall, we provide a unique test of the theory of limited attention by documenting that extraneous events can have a significant impact on the pricing of earnings. * Accepted by Shivaram Rajgopal. We thank Mark Bradshaw, Ted Christensen, Jeff Hoopes, Rick Mergenthaler, Sam Melessa, Brady Twedt and participants at the 2012 BYU Accounting Symposium and doctoral students at the University of Washington for helpful comments and discussions. We also thank Spencer Young for excellent research assistance. We are also grateful to the Marriott School of Management, Stanford Graduate School of Business, and Foster School of Business for financial support.

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“…Hirshleifer et al [2009] find that when an earnings announcement is made on days with many competing announcements, the immediate price reaction is weaker, and the post-announcement drift stronger. Finally, Drake et al [2015] find that the market response to earnings news released during the NCAA basketball tournament (March Madness) is also more muted, and less likely to be fully incorporated into price immediately. In each case, investor distractions seem to affect the speed and efficacy of the market response to earnings news.…”

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