Withdrawal of Management Earnings Guidance During the COVID-19 Pandemic
52 Pages Posted: 2 Mar 2021
Date Written: February 27, 2021
The COVID-19 pandemic has resulted in extreme uncertainty in the future earnings of many firms. In this paper, we examine how firms’ exposure to the pandemic affects their guidance withdrawals. Almost half the firms in our sample withdraw their management earnings guidance instead of maintaining or revising it. Our empirical analysis reveals that firms more affected by the pandemic are more likely to withdraw guidance. This is consistent with firms generally being unwilling to commit to earnings targets when facing extreme uncertainty. The effect is more pronounced for firms facing higher litigation risk and product market competition. Guidance withdrawal also is associated with downward revisions in analyst forecasts, increased analyst forecast dispersion, and reduced analyst forecast accuracy, as well as greater share turnover, bid-ask spreads, and stock return volatility. Our paper provides novel insight into the phenomenon of guidance withdrawal as a disclosure response in times of extreme uncertainty.
Keywords: COVID-19, voluntary disclosure, management earnings guidance
JEL Classification: G30, G32, G33, G38, M41, M48
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