Management Forecasts and Bad News Hoarding

Download or read book Management Forecasts and Bad News Hoarding written by Sophia Hamm and published by . This book was released on 2018 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many recent studies explore how earnings properties such as opacity, conservatism, and comparability relate to stock price crash risk. Motivated by the importance of earnings guidance as a voluntary disclosure mechanism that directly provides new information to the market, we investigate how guidance and the bias therein are linked to crash risk. Our initial analysis shows that on average, more guidance is associated with a higher crash risk. After an in-depth investigation, we find that this positive relation is driven by guidance optimism that the market does not instantly detect. This finding is consistent with optimistic guidance temporarily disguising bad news until its future revelation. Overall, our finding highlights that bias in earnings guidance can expose equity investors to significant downside risk.