Is Silence Golden? An Empirical Analysis of Firms that Stop Giving Quarterly Earnings Guidance
University of Texas at Austin - Red McCombs School of Business
Dawn A. Matsumoto
University of Washington - Department of Accounting
Columbia Business School
October 20, 2010
Journal of Accounting & Economics (JAE), Forthcoming
We investigate firms that stop providing earnings guidance (stoppers) either by publicly announcing their decision (announcers) or doing so quietly (quiet stoppers). Relative to firms that continue guiding, stoppers have poorer prior performance, more uncertain operating environments, and fewer informed investors. Announcers commit to nondisclosure because they (i) do not expect to report future good news; or (ii) have lower incentives to guide due to the presence of long-term investors. The three-day return around the announcement is negative. Stoppers subsequently experience increases in analyst forecast dispersion and decreases in forecast accuracy but no change in return volatility or analyst following.
Date posted: October 21, 2010
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