Is Guidance a Macro Factor? the Nature and Information Content of Aggregate Earnings Guidance

Abstract

Although a great deal of research documents the information content of management earnings forecasts at the firm level, there is little research on the informativeness of aggregate earnings guidance. We argue that aggregate earnings guidance is potentially informative at the market/economy level through its effects on expectations about market-level expected future cash flows and expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We also find some evidence that guidance - again, largely downward guidance - is associated with market returns.

Keywords: Earnings guidance, management earnings forecasts

JEL Classification: G12, G14, M41, G29