Is guidance a macro factor? The nature and information content of aggregate earnings guidance. Working paper

Although there is a great deal of research that documents the information content of management earnings forecasts at the firm level, there is almost no research on the informativeness of aggregate guidance. We argue that aggregate earnings guidance is informative at the market/economy level through its effects on expectations about market-level expected future cash flows and expected returns. Consistent with aggregate guidance capturing information about economy-wide cash flows, we find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We also find that guidance affects market returns in those months each quarter when the most guidance is released, and that relative levels of downward guidance are especially informative. Overall, the evidence supports our contention that guidance affects market returns by aggregating news about market-level cash flow shocks and through its effects on market uncertainty