Management Guidance and Monetary Policy Transmission in the Eurozone

66 Pages Posted: 1 Mar 2023

See all articles by Mansoor Afzali

Mansoor Afzali

Hanken School of Economics

Gonul Colak

University of Sussex ; Hanken School of Economics

Sinh Thoi Mai

ISEG Lisbon School of Economics and Management,Universidade de Lisboa

Pavel G. Savor

DePaul University - Kellstadt Graduate School of Business; affiliation not provided to SSRN

Date Written: February 24, 2023

Abstract

We study whether management guidance affects how stock prices respond to monetary policy shocks in the Eurozone. Using intraday data to measure European Central Bank’s interest rate surprises, we show that issuing earnings guidance prior to the announcement attenuates the stock reaction for young firms by as much as 35 percent. This effect is stronger for firms with high information asymmetry and those that rely on external financing. The nature of the guidance —sentiment, precision, credibility, frequency, and disaggregation— all impact the relation between stock prices and monetary policy changes. Our findings are consistent with the hypothesis that monetary policy is especially important for high-information-asymmetry firms and that managerial guidance reduces the exposure to monetary shocks for such firms.

Keywords: Management earnings guidance; monetary policy; European Central Bank; Information asymmetry

JEL Classification: E52, E58, G12, G14, G32, M41

Suggested Citation

Afzali, Mansoor and Colak, Gonul and Mai, Sinh Thoi and Savor, Pavel G., Management Guidance and Monetary Policy Transmission in the Eurozone (February 24, 2023). Available at SSRN: https://ssrn.com/abstract=4369645 or http://dx.doi.org/10.2139/ssrn.4369645

Mansoor Afzali

Hanken School of Economics ( email )

FI-00101 Helsinki
Finland

Gonul Colak

University of Sussex ( email )

Jubilee Building
Falmer
Brighton, BN1 9SN
United Kingdom

Hanken School of Economics ( email )

P.O. Box 479
Arkadiankatu 22
FI-00100 Helsinki, 00100
Finland

Sinh Thoi Mai (Contact Author)

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

Pavel G. Savor

DePaul University - Kellstadt Graduate School of Business ( email )

1 E. Jackson Blvd.
Chicago, IL
United States

affiliation not provided to SSRN

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