Economic Downturns and the Informativeness of Management Earnings Forecasts

Economic downturns brought about by events such as the financial crisis and COVID-19 pandemic create substantial uncertainty for companies. While some firms endure the downturns unscathed or even thrive, others see their businesses decline drastically and their bankruptcy risk increase. The heightened uncertainty makes it especially difficult for market participants, such as investors and analysts, who rely on personal experience and public information to assess how a particular firm will perform during a downturn. In contrast, managers – as insiders – are better able to assess their firm’s future performance because they receive timely information about the firm’s operations and … Read more