Companies in the United States are turning to voluntary earnings guidance to prevent confusion resulting from environmental, social and governance disclosures, according to a new study from researchers at Florida Atlantic University and the University of Vassa in Finland.
Companies in the United States are turning to voluntary earnings guidance to prevent confusion resulting from environmental, social and governance disclosures, according to a new study from researchers at Florida Atlantic University and the University of Vaasa in Finland.
The paper sheds new light on how environmental, social and governance disclosures from companies may increase information asymmetry, challenging previous theories that ESG disclosures enhanced transparency.
Information asymmetry happens when investors have less access to critical information about a firm, often causing confusion and inefficiencies in the market. Reducing this lack of information is crucial for investors to make sound decision-making. To combat this, firms are releasing voluntary earnings guidance, or disclosures on estimates about future financial earnings, to help reduce speculation amongst investors.
“There is a belief that ESG disclosures would decrease or improve the information asymmetry. However, because of the different ways companies use ESG disclosure, it may create confusion among market participants,” said Anna Agapova, Ph.D., associate professor of finance in FAU’s College of Business. “What we find is that companies increase issuing voluntary earnings guidance to mitigate the unexpected effect of ESG disclosure on information asymmetry.”
The paper, “Navigating Transparency: The Interplay of ESG Disclosure and Voluntary Earnings Guidance,” was accepted for publication in the International Review of Financial Analysis in the winter.
Researchers analyzed data from publicly listed U.S. companies from 2002-21, relying on 54,878 firm-quarter observations. Researchers measured information asymmetry with four proxies: bid-ask spread, Amihud illiquidity measure, distribution of analysts’ forecasts, and standard deviation of earnings announcements’ returns.
Despite the voluntary earnings guidance mitigating possible confusion with ESG disclosures, researchers found that market participants did not have a clear understanding of how to interpret ESG disclosures alongside the earnings guidance.
“The conclusions in this paper add to the debate regarding the need for clear and formalized guidelines for sustainability reporting and disclosure through the establishment of proper standards for sustainability that should help decrease disagreement and improve a common understanding regarding ESG information,” authors noted in the study.
Study co-authors are Tatiana King, Ph.D., associate professor in the University of Vaasa’s school of accounting and finance; and Mikko Ranta, Ph.D., associate professor of accounting at the University of Vaasa.
-FAU-
Latest News Desk
- FAU Social Work Professor Receives Lifetime Achievement AwardAllan Barsky, Ph.D., an FAU professor of social work, has received the Significant Lifetime Achievement in Social Work Education Award from the CSWE.
- FAU's CA-AI Makes AI Smarter by Cleaning Up Bad Data Before It LearnsFAU engineering researchers from the CA-AI have developed a method to automatically detect and remove label noise from data before training begins, resulting in smarter, faster and more reliable AI.
- Logistics Leaders See Tight Capacity, High Prices Through Mid-2026The Logistics Managers' Index rose for the second consecutive month due to rising costs as the economy remains uncertain, according to researchers at Florida Atlantic University and four other schools.
- Green Seaweed Replaces Seagrass, But Sea Slugs Pose New ThreatsFAU Harbor Branch researchers found that Caulerpa prolifera has taken over seagrass in the Indian River Lagoon, reducing biodiversity, and recently raising concerns over rising numbers of sap-sucking sea slugs.
- To Build Muscle and Gain Strength, Train Smarter - Not LongerThink you need marathon gym sessions to build muscle? Think again. Less is more, according to a study by FAU exercise scientists, which confirms ditching long gym sessions will still show real results.
- Rings of Time: Unearthing Climate Secrets from Ancient TreesResearchers used radiocarbon dating and tree-ring analysis on subfossil bald cypress trees in a Southeast Georgia swamp, uncovering dramatic growth pattern shifts over centuries.