Management Earnings Forecasts, Information Asymmetry, and Liquidity: An Empirical Investigation
64 Pages Posted: 25 Jun 2007
Date Written: July 2007
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 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 windows. Third, initiating or ceasing the issuance of earnings forecasts has no significant long-term effect on the firm's liquidity. Combined, these results suggest that management earnings forecasting decision does not appear to be driven by liquidity-improvement goals, and that management earnings forecasts do not appear to strongly affect firms' liquidity.
Keywords: managment earnings forecast, information assymetry, liquidity
JEL Classification: M41, M45
Suggested Citation: Suggested Citation