The Impact of Earnings Guidance Cessation on Information Asymmetry

27 Pages Posted: 25 Feb 2014

See all articles by Bill Hu

Bill Hu

University of Memphis - Fogelman College of Business and Economics

Joon Ho Hwang

Korea University

Christine X. Jiang

Fudan University

Date Written: January/February 2014

Abstract

This paper studies the impact of quarterly earnings guidance cessation on information asymmetry using a large sample of firms during the years 2002–11. After earnings guidance cessation, information asymmetry may increase because less information is provided to the market. Alternatively, information asymmetry may decrease if managers have less pressure to manage reported earnings to meet guidance numbers. Our study shows guidance cessation significantly reduces information asymmetry compared to matched non‐guiders and guidance maintainers. We also find that firms engage in less earnings management after guidance cessation, especially for firms that had provided guidance on a persistent basis.

Keywords: earnings guidance, information asymmetry, earnings management, market microstructure

Suggested Citation

Hu, Bill and Hwang, Joon Ho and Jiang, Christine X., The Impact of Earnings Guidance Cessation on Information Asymmetry (January/February 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 1-2, pp. 73-99, 2014, Available at SSRN: https://ssrn.com/abstract=2400806 or http://dx.doi.org/10.1111/jbfa.12061

Bill Hu

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Joon Ho Hwang

Korea University ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea

Christine X. Jiang

Fudan University ( email )

School of Management
Shanghai, 200433
China
862125011085 (Phone)

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