Updating Forecasts in the Face of a Material Deviation: Nondisclosure, Withdrawals, and Downplaying Communication

52 Pages Posted: 31 Aug 2018 Last revised: 13 May 2020

See all articles by Nathan T. Marshall

Nathan T. Marshall

University of Colorado at Boulder - Department of Accounting

A. Nicole Skinner

University of Georgia - J.M. Tull School of Accounting

Date Written: May 12, 2020

Abstract

We examine the disclosure choices managers make when initial forecasts become materially inaccurate. Despite earnings deviations being material, a number of firms fail to update the market with a new guidance number, either by withdrawing or not updating the initial forecast. Further, even when the forecast is revised, the guidance update is often downplayed. These communication choices have important consequences for equity investors and financial analysts, including less timely incorporation of the earnings information and differential reliance at the announcement dates. Nondisclosure is associated with greater uncertainty about information endowment and a shorter-horizon investor base, relative to revising firms, whereas withdrawals are associated with greater uncertainty about firm performance. Finally, the determinants of downplaying guidance are more consistent with opportunistic incentives rather than incentives to inform.

Keywords: Forecast revisions; material deviations; forecast withdrawals; nondisclosure; forecast transparency

Suggested Citation

Marshall, Nathan T. and Skinner, Ashley Nicole, Updating Forecasts in the Face of a Material Deviation: Nondisclosure, Withdrawals, and Downplaying Communication (May 12, 2020). Available at SSRN: https://ssrn.com/abstract=3237089 or http://dx.doi.org/10.2139/ssrn.3237089

Nathan T. Marshall (Contact Author)

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Ashley Nicole Skinner

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
117
Abstract Views
1,558
rank
262,057
PlumX Metrics