Media Coverage and Management Earnings Guidance

Abstract

The business media disseminates managers’ earnings guidance news more broadly or creates new information content on the guidance (Drake et al. 2014). We hypothesize that the media’s information dissemination encourages managers to continue issuing earnings guidance because their intended messages in earnings guidance can be transmitted more broadly and free of cost to managers. We also hypothesize that the media’s information creation induces managers to stop issuing earnings guidance because the media might interfere with managers’ intended guidance outcomes. Using a comprehensive dataset of media articles covering management guidance from 2007 to 2012, we find evidence supporting these hypotheses. Additionally, we find evidence that the negative impact of the media’s information creation on future guidance issuance is amplified with bad news guidance and attenuated with high analyst following. Our findings provide fresh insight into the information flow in financial markets by documenting not only positive but also negative influences that the media, through its dual roles, exerts on managers’ guidance behavior.