Is Silence Golden? An Empirical Analysis of Firms that Stop Giving Quarterly Earnings Guidance
Posted: 21 Oct 2010
Date Written: October 20, 2010
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.
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