On the Willingness of UK Companies to Issue Profit Warnings: Regulatory, Earnings Surprise Permanence, and Agency Cost Effects

Manchester School of Accounting and Finance, MW/GH, No. 03-01

57 Pages Posted: 31 Mar 2003

See all articles by Guenther Helbok

Guenther Helbok

Bank Austria Creditanstalt - Department of Operational and Group Risk Control

Martin Walker

University of Manchester - Manchester Business School

Date Written: January 2003

Abstract

This paper presents an empirical study of profit warnings issued by UK companies. The study adds value to the existing literature on warnings because it models the warning decision in a stock market economy that is significantly less litigious than the US. This in turn allows factors, other than the threat of litigation, to influence the decision to warn. In addition we produce evidence on the effect of a change in the London Stock Exchange rules relating to the release of price sensitive information on the frequency and timing of profit warnings.

The paper describes the profit warning experience of the London Stock Market for periods surrounding a change in the stock exchange rules governing the issuance of warnings in 1994. Given this background the paper then moves on to model a range of factors that potentially have influenced the decision to warn. Special attention is paid to the influence of ownership structure and bondholder/stockholder conflicts of interest on the decision to warn.

Keywords: voluntary disclosure, profit warning, price sensitive information, management disclosures, earnings surprise

JEL Classification: M41, M45, K22, G34, L14

Suggested Citation

Helbok, Guenther and Walker, Martin, On the Willingness of UK Companies to Issue Profit Warnings: Regulatory, Earnings Surprise Permanence, and Agency Cost Effects (January 2003). Manchester School of Accounting and Finance, MW/GH, No. 03-01, Available at SSRN: https://ssrn.com/abstract=375521 or http://dx.doi.org/10.2139/ssrn.375521

Guenther Helbok

Bank Austria Creditanstalt - Department of Operational and Group Risk Control ( email )

Julius Tandler Platz 3
Vienna 1011
Austria

Martin Walker (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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