We study the impact of quarterly earnings guidance cessation on information asymmetry. There are two possibilities for the effect of guidance cessation on information asymmetry. After guidance cessation, information asymmetry may increase because less information is provided to the market. Alternatively, information asymmetry may decrease because managers feel less pressure to manage earnings to meet guidance numbers. Using transaction data, our study shows guidance cessation reduces information asymmetry for persistent guiders but not for occasional guiders. We find that the reductions in information asymmetry are driven, at least in part, by firms engaging in less earnings management after guidance cessation.
Keywords: earnings guidance, information asymmetry, market microstructure
