Withdrawal of management earnings guidance during the COVID-19 pandemic

Abstract

The Covid-19 pandemic has produced unprecedented adverse macroeconomic conditions for many firms. It has also provoked a surge in firms withdrawing prior guidance— a corporate disclosure phenomenon that has captured the attention of media and practitioners. In this paper, we examine how firms' exposure to the onset of the pandemic affects their guidance withdrawals. Our empirical analysis reveals that firms more affected by the pandemic are more likely to withdraw guidance, consistent with firms being unwilling to publicly commit to targets when facing macroeconomic adversity. The effect is more pronounced for firms facing higher litigation risk and product market competition, consistent with these conditions making the firm less willing to publicly commit to targets in the face of adversity. We also provide evidence that firms with greater exposure to the pandemic are likely to take the combined action of withdrawing prior guidance and stopping the issuance of new guidance. Moreover, as the number of guidance reinstatements is quite large, we find that firms that are likely to do so are those with improving firm performance subsequent to their initial withdrawal decision. Finally, we document that firms with greater exposure to the pandemic are discussing the pandemic less during earnings conference calls, suggesting that the unwillingness to disclose information about the pandemic extends beyond quantitative disclosure to qualitative disclosure. Overall, our paper offers early and novel evidence on how corporate disclosure has been affected by the pandemic.