Dual‐Class Firms and Voluntary Disclosure of Earnings Guidance

ABSTRACT

This paper shows that dual‐class firms issue more quarterly management earnings guidance, particularly when the guidance contains negative news. This effect is driven by the fact that insiders in dual‐class firms maintain sufficient control to be isolated from market pressure and disciplinary outcomes following disclosure. The higher propensity to issue guidance is stronger among dual‐class firms that are controlled or managed by their founders and becomes more pronounced as dual‐class firms age. Moreover, dual‐class managers, having close reputational and financial ties to their firms, issue more frequent guidance when they face higher litigation risk. I also find that dual‐class managers are less likely to time their disclosures opportunistically, such as releasing them after trading hours to dampen market reaction. I address the endogeneity of ownership structure with a difference‐in‐differences estimation using a sample of dual‐class firms that unified their share‐classes. Importantly, I find that the disclosure quality of dual‐class firms, measured by both accuracy and precision, is unaffected despite issuing more guidance.