Withdrawal of Management Guidance During the COVID-19 Pandemic
66 Pages Posted: 2 Mar 2021
Date Written: February 27, 2021
The Covid-19 pandemic has produced unprecedented adverse macroeconomic conditions for many firms. It has also provoked a surge in firms withdrawing prior guidance—a corporate disclosure phenomenon that has captured the attention of media and practitioners. In this paper, we examine how firms’ vulnerability to the pandemic affects their guidance withdrawals. Our empirical analysis reveals that firms more affected by the pandemic are more likely to withdraw guidance, consistent with firms’ unwillingness to publicly commit to targets when facing macroeconomic adversity. The effect is more pronounced for firms facing higher litigation risk and product market competition, which is consistent with these conditions making the firm less willing to publicly commit to targets in the face of adversity. We also provide evidence that firms with greater exposure to the pandemic are likely to take the combined action of withdrawing prior guidance and stopping the issuance of new guidance. Moreover, we find that among firms that withdraw guidance, those whose performance subsequently improves are more likely to reinstate their guidance. Finally, we document that firms with greater exposure to the pandemic mention the pandemic less often during earnings conference calls, suggesting that the unwillingness to disclose information about the pandemic extends beyond quantitative disclosure to qualitative disclosure. Overall, our paper offers early and novel evidence on how the pandemic has affected corporate disclosure.
Keywords: COVID-19, voluntary disclosure, management earnings guidance
JEL Classification: G30, G32, G33, G38, M41, M48
Suggested Citation: Suggested Citation