Withdrawal of Management Guidance During the COVID-19 Pandemic

Abstract

The Covid-19 pandemic produced unprecedented macroeconomic conditions for many firms. It also provoked a surge in firms withdrawing their prior guidance—a corporate disclosure phenomenon that captured the attention of the media and practitioners. In this paper, we examine how firms’ vulnerability to the pandemic affects their guidance withdrawal. Our empirical analysis reveals that firms more affected by the pandemic are more likely to withdraw guidance, consistent with firms’ unwillingness to publicly commit to targets when facing macroeconomic adversity and uncertainty. The effect is more pronounced for firms facing higher litigation risk and higher product market competition, which is consistent with these conditions rendering the firm less willing to publicly commit to targets. We also provide evidence that firms with greater exposure to the pandemic are likely to take the combined action of withdrawing prior guidance and stopping the issuance of new guidance. Moreover, we find that among those firms that withdraw guidance, those that experience a subsequent improvement in performance are more likely to reinstate the guidance. We also document that firms with greater exposure mention the pandemic less during earnings conference calls, suggesting that the unwillingness to disclose information about the pandemic extends beyond quantitative to qualitative disclosure. Finally, we find that analyst forecasts show greater downward revisions and larger increases in dispersion following guidance withdrawal relative to a matched control group. Overall, our paper offers early and novel evidence on how the pandemic affects corporate disclosure.

Keywords: Covid-19, voluntary disclosure, management guidance

JEL Classification: G30, G32, G33, G38, M41, M48