On guidance and volatility
AbstractSurvey evidence suggests that managers voluntarily disclose information, particularly earnings guidance, with an aim toward dampening share price volatility. Yet, consultants and influential institutions advise against providing guidance citing fears of litigation and market penalties associated with missed earnings targets, as well as a lack of evidence that disclosure actually curbs volatility. Furthermore, recent research links guidance to increased volatility and heightened crash risk. Hence, many argue that guidance not only fails to promote tranquility but may actually prompt turbulence. In this paper, we consider the interplay between guidance and volatility. Consistent with the notion that volatility does indeed factor into managers decisions to supply earnings guidance, we provide evidence of a link between increased volatility and the likelihood that a manager chooses to bundle a forecast with the firms earnings announcement in the current quarter. In particular, our findings indicate that firms in more volatile information environments exhibit a general reticence to offer guidance, but given a recent spike in volatility, managers are more likely to jump in with a forecast seemingly in an effort to calm the market. Subsequent tests indicate that managers efforts do not go unrewarded, as we document a greater post-announcement run-down in volatility for guiding firms. Taken collectively, this evidence supports the view that managers can and do positively shape their firms information environments by an earnings guidance.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Maastricht : GSBE, Graduate School of Business and Economics in its series Research Memorandum with number 039.
Date of creation: 2013
Date of revision:
Contact details of provider:
Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
Information and Market Efficiency; Event Studies; Business and Securities Law; Accounting;
Find related papers by JEL classification:
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen).
If references are entirely missing, you can add them using this form.