Research

Abstract: We examine how the provision, quality, and usefulness of earnings guidance change around material M&A transactions, a period for which we expect guidance to be more difficult to form, but also more in demand. Earnings guidance increases, on average, but tends to become less precise and accurate. Despite the lower-quality guidance, the market response is at least as strong relative to prior earnings guidance. The issuance of earnings guidance is more likely when we expect it to be easier to form or more in demand. We observe the greatest increase in earnings guidance among firms without a robust guidance history, whereas acquirers with a history of routinely issuing earnings guidance decrease earnings guidance, on average, and appear to substitute earnings guidance with EBITDA guidance. Collectively, we identify important setting-specific nuances of management guidance, illustrating important trade-offs in meeting investor demand following M&As given firm-specific challenges to supply guidance.