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Management Earnings Forecasts, Information Asymmetry, and Liquidity: An Empirical Investigation
Mikhail Pevzner,
George Mason University
ABSTRACT. This study investigates (1) whether forecasting firms have lower liquidity prior to the issuance of a management-earnings forecast than non-forecasting firms and (2) whether forecasting earnings has a persistent affect on a firm’s liquidity. I answer the first research question by comparing the liquidity levels of forecasting firms to those of non-forecasting firms. I answer the second research question by investigating liquidity changes around an earnings forecast, and by examining the liquidity affects of changes in a firm’s forecasting policy. I find that, first, forecasting firms have greater liquidity in the period prior to a forecast. Second, while issuing forecast increases liquidity in over short windows, this effect is not significant over longer (i.e., 90-day windows). Third, initiating or ceasing the issuance of earnings forecasts has no significant long-term effect on the firm’s liquidity
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