Asymmetric Effects of Regulation FD on Management Earnings Forecasts
47 Pages Posted: 4 May 2015 Last revised: 24 Aug 2020
Date Written: April 27, 2015
We document that the effect of Regulation Fair Disclosure (FD) on public management earnings forecasts (MFs) is asymmetric. Our results suggest FD increased managers’ use of MFs as a downward guidance mechanism to help achieve meeting or beating earnings expectations. This effect is more pronounced when existing analyst forecasts are optimistic and when firms had selective disclosure policies pre-FD. We also find that the increased use of MFs as downward guidance leads to post-FD reductions in MF quality (accuracy and informativeness) for the downward guiding MFs that are most likely meet/beat motivated, while quality improves for upward guiding MFs. Finally, our evidence suggests that results from prior research about FD-induced changes in information environment variables, such as analyst forecast quality and investor trading activities, depend on whether the firm issues MFs and whether those MFs are downward guiding.
Keywords: management earnings forecasts; downward guidance; regulation; voluntary disclosure
JEL Classification: G18; G28
Suggested Citation: Suggested Citation