Financial Journalism and Quarterly Earnings Guidance

Financial journalists have two countervailing incentives when reporting on a firm’s quarterly earnings guidance. On one hand, their explicit incentive to attract readership leads them to express exclusive views that deviate from the guidance news managers intend to deliver. We hypothesize that this “reshaped” guidance news induces managers to stop issuing guidance because it leads to greater investor response uncertainty and, in turn, nondisclosure in equilibrium (media reshaping hypothesis). On the other hand, financial journalists have an implicit quid pro quo incentive to produce feature stories that benefit corporate agents in exchange for information access or advertising revenue. Their coverage of guidance news would encourage firms to continue guidance so as to benefit from this “editorial service” (media reinforcing hypothesis). Using a comprehensive dataset of financial journalists’ articles covering quarterly earnings guidance, we find evidence supporting the media reshaping hypothesis. Our study provides fresh insight into the information flow in financial markets by documenting evidence that the media, through its reshaping effect, curtails the likelihood of managers issuing earnings guidance.