Is Silence Golden? An Empirical Analysis of Firms that Stop Giving Quarterly Earnings Guidance

Abstract:     
We investigate a sample of 96 firms that publicly renounced quarterly EPS guidance in the post-FD period (10/2000 to 1/2006). We find that stoppers have poor trailing stock return performance and lower institutional ownership. We document an average -4.8% three-day return around the announcement to stop guidance and this reaction is associated with poor future performance. After the elimination of guidance, stock prices lead earnings less but there is no change in overall stock return volatility or analyst following. However, analyst forecast dispersion increases and forecast accuracy decreases following firms' decision to stop guiding, despite increased disclosures made in earnings press releases.

Keywords: Earnings guidance, stop guidance, cost of capital

JEL Classifications: A10, D21, D80, G14, K40, K41, M10, M20, M41

Working Paper Series