Is Silence Golden? An Empirical Analysis of Firms that Stop Giving Quarterly Earnings Guidance in the Post Regulation-Fd Period*

Abstract

We investigate a sample of 75 firms that publicly renounced quarterly EPS guidance in the post-FD period (10/2000 to 10/2004). We find that stoppers have poor trailing earnings and stock return performance. We document an average -3.8% three-day return around the announcement to stop guidance and such reaction is associated with poor future performance and an increase in systematic risk. After the elimination of guidance, stock prices lead earnings less but there is no change in overall stock return volatility or analyst following. However, analyst forecast dispersion increases and forecast accuracy decreases following firms' decision to stop guiding.

Keywords: quarterly earnings guidance, stop guidance, cost of capital

JEL Classification: M41, M45, G12, G29