Do Management Earnings Forecasts Resolve Uncertainty around Earnings Announcements?

Abstract

The purpose of a management earnings forecast is to forecast the eventual earnings figure released to the market at the earnings announcement date. To the extent that management earnings forecasts should reduce periodic shocks by reducing information asymmetry, stock return volatility is expected to be lower for firms who release them surrounding the earnings announcement date. Specifically, this paper asks the question whether stock return volatility surrounding earnings announcements is lower for firms who do release a management earnings forecast compared to those who do not, contingent on forecast accuracy. The empirical results show otherwise, specifically that for firms issuing a management earnings forecast, which is ex post accurate, do not experience stock return volatility at any statistically significantly lower levels. This result is interpreted that old news is still news.

Keywords: Disclosure, Management Earnings Forecasts, Earnings Announcements, Stock Return Volatility

JEL Classification: G14, M41