Impact of the earnings’ guidance provided by public companies on their market capitalization and share price volatility in the Russian stock market

Abstract

Authors :Maria Sergeevna Sukhanova National Research University The Higher School of Economics

Elena Vladimirovna Chirkova National Research University The Higher School of Economics evchirkova@gmail.com

This paper analyses the impact of corporate earnings guidance on the market capitalization and share price volatility as well as the impact of earnings surprises on shares’ return for a sample of 27 Russian public metal mining companies and fertilizers’ producers for the period of за 2006–2011. The study reveals no link between earnings guidance and return on shares as well as between earnings surprises and return on shares. At the same times share prices of companies which provide earnings guidance are more volatile than those which do not. Thus, an increase in transparency does not result in increased return on shares as compared to less transparent companies, but it increases share price volatility and risk associated with investments in such shares. This effect may mean that investors do not take into account the management forecasts of the Russian public companies. Those forecasts may be too inaccurate due to high volatility of business environment, absence of regulation of corporate forecasts’ disclosure and managers’s interest in overstating the forecasts.