The Impact of Earnings Guidance Cessation on Information Asymmetry

Hu, Xiankui; Hwang, Joon Ho; Jiang, Christine X.

doi:10.2139/ssrn.1461890

Cited by 5 publications

(3 citation statements)

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“…4 Ball and Shivakumar (2008) find that the average quarterly earnings announcement is associated with only approximately 1-2% of the annual information that drives the stock price, suggesting that reported earnings do not provide much timely new information to the stock market. Hu et al (2014) find that information asymmetry decreases for firms that cease to provide earnings guidance. As such, poor earnings quality contributes as only one aspect among other factors in the information asymmetry problem of a firm.…”

Section: Introductionmentioning

confidence: 87%

Target Information Asymmetry and Acquisition Price

Cheng¹,

Li²,

Tong

2016

Business Fin & Account

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This study investigates the effects of target information asymmetry in a takeover transaction. We find that a target with more information asymmetry receives a larger bid premium from the acquirer. We examine the response of the acquirer's investors to the bid to clarify whether the larger bid premium is an overpayment by the acquirer. We observe that the acquirer's investors respond more positively to the acquisition of an opaque target, indicating that the market recognizes the acquirer's valuation of the opaque target and agrees with the offer price. Our results indicate that corporate takeovers help to resolve asymmetric information in the capital market.

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Section: Introductionmentioning

confidence: 87%

Target Information Asymmetry and Acquisition Price

Cheng¹,

Li²,

Tong

2016

Business Fin & Account

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“…The occurrence of forecasts refers to the status of forecast issuance. Where Hu et al () find less earnings management after firms cease issuing earnings guidance, we examine whether potential earnings management as evidenced by a restatement is associated with the managerial decision to issue or not issue earnings guidance. Precision of forecasts refers to the form of the forecast issued.…”

Section: Additional Analyses and Robustness Testsmentioning

confidence: 99%

“…The occurrence of forecasts refers to the status of forecast issuance. Where Hu et al (2014) find less earnings management after firms cease issuing earnings guidance, we examine whether Note: Table 6 reports the results from regressions of FCERROR ANA on RESTATE, POST, the interaction term between RESTATE and POST, and other control variables. FCERROR ANA alternatively represents absFCER-ROR ANA (analyst forecast accuracy) and signFCERROR ANA (analyst forecast bias).…”

Section: (Ii) Forecast Occurrence and Precisionmentioning

confidence: 99%

Management Guidance Pre‐ and Post‐Restatement

Gordon¹,

Henry²,

Li³

et al. 2014

Business Fin & Account

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We examine whether the quality of restating firms’ management guidance differs in periods before and after restatement announcements. While characteristics of restating firms and the consequences of restatement have been a central topic in accounting and auditing research, the quality of management guidance around restatements is less well understood. We consider two competing characterizations of the link between management forecast accuracy and bias and restatement (an event that tends to signal poor financial controls): “Forecast–Opportunism Explanation” and “Forecast–Ability Explanation”. Under the Forecast–Opportunism Explanation, pre‐restatement weaknesses in financial controls enable managers to manipulate earnings toward forecasts and to meet or exceed opportunistically biased forecasts, and the post‐restatement strengthening of financial controls constrains opportunistic behavior. Under the Forecast–Ability Explanation, pre‐restatement weaknesses in financial controls impede managers’ ability to issue accurate forecasts, and post‐restatement improvements remove impediments so that the accuracy of forecasts improves; forecast bias remains unaffected. Evidence indicates that before a restatement, restating firms’ forecasts are more accurate and relatively more downwardly biased than control firms’ forecasts. Post‐restatement, restating firms have less accurate and less downwardly biased management guidance. Our overall results are consistent with the Forecast–Opportunism Explanation.

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