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The Impact of Earnings Guidance Cessation on Information Asymmetry
Author(s) -
Hu Bill,
Hwang Joon Ho,
Jiang Christine
Publication year - 2014
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12061
Subject(s) - information asymmetry , earnings , asymmetry , business , sample (material) , demographic economics , accounting , economics , finance , chemistry , physics , chromatography , quantum mechanics
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.