An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Isabel Yanyan Wang
Michigan State University

Abstract: This study develops a new measure of private earnings guidance through analysts. Relying on this measure, I investigate why some firms provide more private earnings guidance to analysts. I further examine how disclosure regulation (i.e., Regulation Fair Disclosure, Reg FD hereafter) exogenously affects firms’ disclosure policies and the economic consequences of this disclosure regulation. Consistent with theory, I find that firms that relied more on private earnings guidance through analysts before Reg FD had higher proprietary information costs, and their earnings were more predictive of other firms’ earnings relative to firms that relied more on public earnings guidance. Also consistent with theory, I find that firms are more likely to replace private guidance with nondisclosure after Reg FD if they have lower information asymmetry and higher proprietary information costs. Finally, these firms suffer significant deterioration in their information environments.

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