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Is silence golden? An empirical analysis of firms that stop giving quarterly earnings guidance

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  • Chen, Shuping
  • Matsumoto, Dawn
  • Rajgopal, Shiva

Abstract

We investigate firms that stop providing earnings guidance (“stoppers”) either by publicly announcing their decision (“announcers”) or doing so quietly (“quiet stoppers”). Relative to firms that continue guiding, stoppers have poorer prior performance, more uncertain operating environments, and fewer informed investors. Announcers commit to non-disclosure because they (i) do not expect to report future good news or (ii) have lower incentives to guide due to the presence of long-term investors. The three-day return around the announcement is negative. Stoppers subsequently experience increases in analyst forecast dispersion and decreases in forecast accuracy but no change in return volatility or analyst following.

Suggested Citation

  • Chen, Shuping & Matsumoto, Dawn & Rajgopal, Shiva, 2011. "Is silence golden? An empirical analysis of firms that stop giving quarterly earnings guidance," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 134-150.
  • Handle: RePEc:eee:jaecon:v:51:y:2011:i:1:p:134-150 DOI: 10.1016/j.jacceco.2010.10.006
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    References listed on IDEAS

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    Cited by:

    1. Dongyoung Lee, 2017. "Corporate Social Responsibility and Management Forecast Accuracy," Journal of Business Ethics, Springer, pages 353-367.
    2. Ruth V. Aguilera & Kurt A. Desender & Mónica López-Puertas Lamy & Jun Ho Lee, 2017. "The governance impact of a changing investor landscape," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, pages 195-221.
    3. Chuk, Elizabeth & Matsumoto, Dawn & Miller, Gregory S., 2013. "Assessing methods of identifying management forecasts: CIG vs. researcher collected," Journal of Accounting and Economics, Elsevier, pages 23-42.
    4. Guay, Wayne & Samuels, Delphine & Taylor, Daniel, 2016. "Guiding through the Fog: Financial statement complexity and voluntary disclosure," Journal of Accounting and Economics, Elsevier, pages 234-269.
    5. Billings, Mary Brooke & Jennings, Robert & Lev, Baruch, 2015. "On guidance and volatility," Journal of Accounting and Economics, Elsevier, pages 161-180.
    6. Tucker, Jennifer Wu, 2015. "The relation between disclosure quality and reporting quality: A discussion of Cassell, Myers, and Seidel (2015)," Accounting, Organizations and Society, Elsevier, vol. 46(C), pages 39-43.
    7. Billings, Mary Brooke & Cedergren, Matthew C., 2015. "Strategic silence, insider selling and litigation risk," Journal of Accounting and Economics, Elsevier, pages 119-142.
    8. Agapova, Anna & Madura, Jeff, 2016. "Market uncertainty and earnings guidance," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 97-111.
    9. Shota Otomasa & Atsushi Shiiba & Akinobu Shuto, 2015. "Management Earnings Forecasts as a Performance Target in Executive Compensation Contracts," CARF F-Series CARF-F-368, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    10. Chen, Jing & Jung, Michael J., 2016. "Activist hedge funds and firm disclosure," Review of Financial Economics, Elsevier, pages 52-63.
    11. Boone, Audra L. & White, Joshua T., 2015. "The effect of institutional ownership on firm transparency and information production," Journal of Financial Economics, Elsevier, vol. 117(3), pages 508-533.
    12. Tang, Michael & Zarowin, Paul & Zhang, Li, 2015. "How do analysts interpret management range forecasts?," Accounting, Organizations and Society, Elsevier, vol. 42(C), pages 48-66.
    13. repec:spr:reaccs:v:22:y:2017:i:2:d:10.1007_s11142-017-9397-z is not listed on IDEAS
    14. Yang, Holly I., 2012. "Capital market consequences of managers' voluntary disclosure styles," Journal of Accounting and Economics, Elsevier, pages 167-184.
    15. Dayanandan, Ajit & Donker, Han & Karahan, Gökhan, 2017. "Do voluntary disclosures of bad news improve liquidity?," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 16-29.
    16. Koch, Adam S. & Lefanowicz, Craig E. & Robinson, John R., 2012. "The effect of quarterly earnings guidance on share values in corporate acquisitions," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1269-1285.

    More about this item

    Keywords

    Earnings guidance; Disclosure; Determinants; Consequences; Stoppage;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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