Financial Journalism and Quarterly Earnings Guidance

66 Pages Posted: 5 Aug 2019 Last revised: 20 Oct 2019

See all articles by Jihun Bae

Jihun Bae

Erasmus University Rotterdam

Robin Litjens

Tilburg University - CentER and Department of Accountancy

Chul W. Park

The University of Hong Kong - School of Business

Yachang Zeng

Nanyang Technological University

Multiple version iconThere are 2 versions of this paper

Date Written: October 19, 2019

Abstract

Financial journalists have two countervailing incentives when reporting on a firm’s quarterly earnings guidance. On one hand, their explicit incentive to attract readership leads them to express exclusive views that deviate from the guidance news managers intend to deliver. We hypothesize that this “reshaped” guidance news induces managers to stop issuing guidance because it leads to greater investor response uncertainty and, in turn, nondisclosure in equilibrium (media reshaping hypothesis). On the other hand, financial journalists have an implicit quid pro quo incentive to produce feature stories that benefit corporate agents in exchange for information access or advertising revenue. Their coverage of guidance news would encourage firms to continue guidance so as to benefit from this “editorial service” (media reinforcing hypothesis). Using a comprehensive dataset of financial journalists’ articles covering quarterly earnings guidance, we find evidence supporting the media reshaping hypothesis. Our study provides fresh insight into the information flow in financial markets by documenting evidence that the media, through its reshaping effect, curtails the likelihood of managers issuing earnings guidance.

Keywords: financial journalist; full article; news flash; quarterly earnings guidance; media reshaping hypothesis; media reinforcing hypothesis

JEL Classification: M41

Suggested Citation

Bae, Jihun and Litjens, Robin and Park, Chul Won and Zeng, Yachang, Financial Journalism and Quarterly Earnings Guidance (October 19, 2019). Available at SSRN: https://ssrn.com/abstract=3432334 or http://dx.doi.org/10.2139/ssrn.3432334

Jihun Bae

Erasmus University Rotterdam ( email )

Burgemeester Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Robin Litjens

Tilburg University - CentER and Department of Accountancy ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Chul Won Park

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China
+852-2859-1081 (Phone)

Yachang Zeng (Contact Author)

Nanyang Technological University ( email )

Singapore, 639798
Singapore

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