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The Impact of Earnings Guidance Cessation on Information Asymmetry

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  • Bill Hu
  • Joon Ho Hwang
  • Christine Jiang

Abstract

This paper studies the impact of quarterly earnings guidance cessation on information asymmetry using a large sample of firms during the years 2002–11. After earnings guidance cessation, information asymmetry may increase because less information is provided to the market. Alternatively, information asymmetry may decrease if managers have less pressure to manage reported earnings to meet guidance numbers. Our study shows guidance cessation significantly reduces information asymmetry compared to matched non-guiders and guidance maintainers. We also find that firms engage in less earnings management after guidance cessation, especially for firms that had provided guidance on a persistent basis.

Suggested Citation

  • Bill Hu & Joon Ho Hwang & Christine Jiang, 2014. "The Impact of Earnings Guidance Cessation on Information Asymmetry," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 73-99, January.
    • Handle: RePEc:bla:jbfnac:v:41:y:2014:i:1-2:p:73-99
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    Cited by:

    1. Huang, Wei, 2016. "The use of management forecasts to dampen analysts' expectations by Chinese listed firms," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 263-272.
    2. Al Mabsali, Yousuf Khamis & Hayward, Robert & Eliwa, Yasser, 2021. "Managerial tools used to meet or beat analyst forecasts: Evidence from the UK," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
    3. Yongtae Kim & Lixin (Nancy) Su & Xindong (Kevin) Zhu, 2017. "Does the cessation of quarterly earnings guidance reduce investors’ short-termism?," Review of Accounting Studies, Springer, vol. 22(2), pages 715-752, June.
    4. Elizabeth A. Gordon & Elaine Henry & Xudong Li & Lili Sun, 2014. "Management Guidance Pre- and Post-Restatement," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 867-892, September.

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