Management Forecasts and Information Asymmetry: An Examination of Bid-Ask Spreads

JOURNAL OF ACCOUNTING RESEARCH, Vol 35, No 2, Autumn 1997

Posted: 25 Jun 1997

See all articles by Maribeth Coller

Maribeth Coller

affiliation not provided to SSRN

Teri Lombardi Yohn

Emory University Goizueta Business School

Abstract

This paper investigates whether the decision to issue a management earnings forecast is related to information asymmetry in the market for the firm s stock and whether the forecasts reduce the asymmetry. Theoretical models hold that a portion of the bid-ask spread arises because of asymmetric information and that specialists widen spreads when they perceive greater information asymmetry. We find that forecasting firms have wider bid-ask spreads than a matched sample of non-forecasting firms prior to the forecast release. This difference disappears after the release of the management forecast. Forecasting firms also experience a gradual increase in spreads over the twelve months leading up to the forecast. The spread is reduced to below the pre- forecast level after the forecast is released.

JEL Classification: G12, M41, M43

Suggested Citation

Coller, Maribeth S. and Yohn, Teri Lombardi, Management Forecasts and Information Asymmetry: An Examination of Bid-Ask Spreads. JOURNAL OF ACCOUNTING RESEARCH, Vol 35, No 2, Autumn 1997, Available at SSRN: https://ssrn.com/abstract=8511

Maribeth S. Coller (Contact Author)

affiliation not provided to SSRN ( email )

Teri Lombardi Yohn

Emory University Goizueta Business School ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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