On guidance and volatility

Mary Brooke Billings, Robert Jennings and Baruch Lev

Journal of Accounting and Economics, 2015, vol. 60, issue 2, 161-180

Abstract: In contrast to theoretical and empirical evidence linking disclosure to information environment benefits, recent research concludes that guidance increases volatility, but leaves open the question of whether volatility plays a role in prompting the issuance of guidance. Consistent with the notion that managers react to rising volatility by providing guidance, we document a link between abnormal run-ups in volatility and the decision to issue a forecast after controlling for the market’s ability to anticipate the guidance. Upon disentangling pre-guidance volatility changes from post-guidance volatility changes, we find no evidence that guidance increases volatility. Indeed, our evidence consistently supports the view that managers seek to and do mitigate share price volatility with guidance.

Keywords: Earnings guidance; Volatility; Earnings announcements; Bundled forecasts (search for similar items in EconPapers)
JEL-codes: G13 G14 M41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:60:y:2015:i:2:p:161-180

DOI: 10.1016/j.jacceco.2015.07.008

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