Does Management Guidance Help Resolve Uncertainty around Macroeconomic Announcements?

52 Pages Posted: 13 Aug 2019 Last revised: 29 Aug 2019

See all articles by Jin Kyung Choi

Jin Kyung Choi

University of Maryland - Robert H. Smith School of Business

Lindsey A. Gallo

University of Michigan, Stephen M. Ross School of Business

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Heedong Kim

Baruch College, City University of New York

Date Written: May 20, 2019

Abstract

We examine whether management guidance contains complementary information that helps resolve investor uncertainty around macroeconomic announcements. We find that when firms issue a management earnings forecast in the month prior to a Federal Open Market Committee (FOMC) announcement of the Federal funds rate target, they experience a significantly larger decrease in implied volatility around the announcement. This effect is more pronounced for firms that are more financially constrained and for firms that have greater investment opportunities, consistent with guidance having greater information complementarities when firm investment is more sensitive to interest rate news. We further find that the guidance effect is stronger for firms that issue capital expenditure forecasts along with earnings forecasts, for firms with more accurate forecasts, and for firms that issue guidance closer to the FOMC announcement. These results suggest that management guidance conveys useful firm-specific information that complements macroeconomic information in resolving investor uncertainty, highlighting an unintended benefit of management guidance.

Keywords: management earnings guidance; voluntary disclosure; uncertainty; implied volatility; monetary policy; macroeconomic announcements; investment sensitivity

Suggested Citation

Choi, Jin Kyung and Gallo, Lindsey A. and Hann, Rebecca N. and Kim, Heedong, Does Management Guidance Help Resolve Uncertainty around Macroeconomic Announcements? (May 20, 2019). Baruch College Zicklin School of Business Research Paper No. 2019-08-02. Available at SSRN: https://ssrn.com/abstract=3434565 or http://dx.doi.org/10.2139/ssrn.3434565

Jin Kyung Choi

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Lindsey A. Gallo (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
7347648243 (Phone)

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Heedong Kim

Baruch College, City University of New York ( email )

One Bernard Baruch Way
New York, NY 10010
United States

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