Financial Journalism and Quarterly Earnings Guidance

Abstract

Financial journalists have two countervailing incentives when reporting on a firm’s quarterly earnings guidance. On the one hand, their explicit incentive to attract readership leads them to express discrepant views that deviate from the guidance news managers intend to deliver. We hypothesize that journalists’ tendency to express discrepant views induces managers to stop issuing guidance because it leads to greater investor response uncertainty and, in turn, nondisclosure in equilibrium (media framing hypothesis). On the other hand, financial journalists have implicit quid pro quo incentives to curry favor with managers in exchange for information access or advertising revenue. Their coverage of guidance news would reinforce the intended guidance message and have no incremental impact on future guidance decisions (media reinforcing hypothesis). Using a comprehensive dataset of financial journalists’ articles covering quarterly earnings guidance, we find evidence supporting the media framing hypothesis. Our study provides fresh insight into the information flow in financial markets. We document evidence that the media, through the effect of its discrepant views, curtails the likelihood of managers issuing earnings guidance.