Withdrawal of Management Earnings Guidance During the COVID-19 Pandemic

52 Pages Posted: 2 Mar 2021

See all articles by Aurelius Aaron

Aurelius Aaron

The Hong Kong Polytechnic University

Jian Kang

Hong Kong Polytechnic University

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Tjomme O. Rusticus

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: February 27, 2021

Abstract

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

Suggested Citation

Aaron, Aurelius and Kang, Jian and Ng, Jeffrey and Rusticus, Tjomme O., Withdrawal of Management Earnings Guidance During the COVID-19 Pandemic (February 27, 2021). Available at SSRN: https://ssrn.com/abstract=3794964 or http://dx.doi.org/10.2139/ssrn.3794964

Aurelius Aaron

The Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Jian Kang

Hong Kong Polytechnic University ( email )

Hong Kong

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Tjomme O. Rusticus (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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