Does Earnings Guidance Affect Market Returns? The Nature and Information Content of Aggregate Earnings Guidance

49 Pages Posted: 21 Aug 2007  

Carol Anilowski Cain

Winston-Salem State University

Mei Feng

University of Pittsburgh - Katz Graduate School of Business

Douglas J. Skinner

The University of Chicago - Booth School of Business

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Abstract

We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to respond to guidance toward the end of each calendar quarter, when most earnings preannouncements are released, and there is some evidence that firm-level guidance affects market returns in short windows around its release.

Keywords: earnings guidance, management forecasts, aggregate earnings, macroeconomic news

JEL Classification: E44, G14, G29, M41, M45

Suggested Citation

Anilowski Cain, Carol and Feng, Mei and Skinner, Douglas J., Does Earnings Guidance Affect Market Returns? The Nature and Information Content of Aggregate Earnings Guidance. Journal of Accounting & Economics (JAE), Vol. 44, No. 1-2, pp. 36-63, 2007. Available at SSRN: https://ssrn.com/abstract=1007746

Carol Anilowski Cain

Winston-Salem State University

601 Martin Luther King, Jr. Dr.
RJR 130
Winston-Salem, NC 27110
United States

Mei Feng

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

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