Earnings Guidance After Regulation FD

Abstract

This study investigates market reactions to the voluntary earnings guidance provided by managers after the enactment of Regulation FD, which requires companies to disseminate material news to all investors simultaneously. More managers now issue their guidance to the public instead of to a selected group of analysts, in conformance with Regulation FD. Examination of a large set of earnings guidance disclosures identified using text-mining techniques indicates that the guidance provided with the disclosure of earnings is not associated with significant market reactions, but that the guidance provided between earnings releases is associated with significant negative reactions. The market reactions are consistent with the trend that management has implied, even when an announcement is in the form of a qualitative disclosure. Market reactions are stronger (more negative, typically) for Nasdaq firms than NYSE or AMEX firms, or larger firms, and when the disclosure involves revenues and not earnings.