Is Silence Golden Sometimes? Management Guidance Withdrawals During the COVID-19 Pandemic

Abstract

The large number of management guidance withdrawals during the COVID-19 pandemic has attracted considerable attention from the media, investors, and regulators. This study analyzes the determinants and consequences of such withdrawals. We find that guidance withdrawals are due to economic uncertainty resulting from firms’ exposure to the COVID-19 pandemic rather than poor financial performance. Also, the effect of COVID-19 exposure on guidance withdrawals is stronger when firms face higher litigation risk. Further, guidance withdrawals result in abnormally large trading volumes and high analyst forecast dispersion but do not negatively affect stock prices or the level of analyst earnings forecasts. Overall, we believe the findings have implications for understanding corporate disclosure practices during periods with heightened economic uncertainty.

Keywords: COVID-19 Pandemic, Economic Uncertainty, Management Guidance, Guidance Withdrawal, Analyst Forecasts

JEL Classification: G30, G34, M10, M40, M41