Investors’ Reactions to Management Earnings Guidance: The Joint Effect of Investment Position, News Valence, and Guidance Form

33 Pages Posted: 4 Jul 2009

See all articles by Jun Han

Jun Han

The University of Hong Kong

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Date Written: November 5, 2008

Abstract

We report the results of an experiment which shows that investors’ earnings- and investment-related judgments are jointly influenced by their investment position (long versus short), the news valence of guidance issued by management, and the amount of ambiguity in the guidance. Prior research indicates that investors who hold long (short) positions in a stock are more optimistic (pessimistic) about the company’s prospects. We extend this research by showing that the effect of investment position documented in prior studies is conditional on news valence and guidance form. Similarly, prior research indicates that guidance form (point versus range) has no effect on investors’ earnings estimates made in reaction to management guidance. We extend this research by showing that guidance form matters, conditional on investment position and news valence. We contribute to prior literature on the effects of investment position and guidance form by delineating boundary conditions for each of these effects.

JEL Classification: M41, M43

Suggested Citation

Han, Jun and Tan, Hun-Tong, Investors’ Reactions to Management Earnings Guidance: The Joint Effect of Investment Position, News Valence, and Guidance Form (November 5, 2008). Available at SSRN: https://ssrn.com/abstract=1429597 or http://dx.doi.org/10.2139/ssrn.1429597

Jun Han (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China
852 22415846 (Phone)

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

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