Spreading the Word: Price Discovery and Newswire Dissemination of Management Earnings Guidance

Abstract

This study investigates the impact of dissemination on the efficiency of the price discovery process with respect to management earnings guidance disclosures. I first identify firm and guidance characteristics associated with the likelihood that guidance receives coverage in the Dow Jones Newswires. Using propensity score, within-firm, and returns-based matched control samples of guidance, I find that newswire dissemination is associated with larger initial price reactions and, more importantly, an increase in the speed with which guidance information is incorporated into price. I also find that newswire coverage affects the market's reaction to stand-alone versus bundled guidance and good versus bad news guidance. This study is the first to provide evidence of systematic variation, both across and within firms, in the breadth of guidance dissemination, and it shows that this variation has a substantial effect on how investors respond to guidance. JEL Classifications: G14; M41; L82.

Investor Relations and Information Assimilation

“…This paper examines whether in-house investor relations (IR) teams provide value to firms by facilitating the assimilation of firm information by the market. 1 Prior research has shown the importance of disclosure (Leuz and Verrecchia 2000;Shroff, Sun, White and Zhang 2013) and dissemination (Bushee, Core, Guay and Hamm 2010;Blankespoor, Miller and White 2013;Twedt 2016) in reducing information asymmetry and improving the price discovery process by providing firm information to market participants. However, even though investors and analysts might receive corporate disclosures (or other news) about the firm, they often need help assimilating the information to better understand its implications for firm value.…”

“…Our findings contribute along two major dimensions. First, we contribute to the large literature that focuses on the role of disclosure (Leuz and Verrecchia 2000;Shroff et al 2013) and dissemination (Bushee et al 2010;Blankespoor et al 2013;Twedt 2016) in reducing information asymmetry and improving market efficiency. 6 Collectively, this literature focuses on management's ability to get information to relevant market participants via corporate disclosures.…”

The Roles of Data Providers and Analysts in the Production, Dissemination, and Pricing of Street Earnings

“…We follow prior literature (e.g., Butler et al, 2007;Bushman et al, 2010;Twedt, 2016;Lyle et al, 2017;Drake et al, 2017) and estimate the speed with which stock prices respond to earnings using market reaction timeliness (MRT, henceforth). 16 Specifically, we calculate the buy-and-hold abnormal return of each day over the [0, 5] trading window, scaled by the buy-and-hold abnormal return for the entire six-day window.…”

“…We define market reaction timeliness as the speed with which prices adjust to earnings information in the [0, 5] trading-day window following the earnings announcement (e.g., Butler et al, 2007;Bushman et al, 2010;Twedt, 2016;Lyle et al, 2017;Drake et al, 2017).…”

Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs

“…Our third contribution is to help reconcile inconsistent results in the media literature. Several studies find that coverage by business newswires induces trading that speeds the pricing of accounting information (e.g., Rogers, Skinner, and Zechman [], Twedt []). Other studies find that media coverage by general interest outlets spurs capital market responses but does not help impound accounting information into price (BDZ [2018], Lawrence et al.…”