Talk the walk

Negative earnings surprises or downward changes in guidance from companies often cause stocks to suffer an almost instant and sometimes significant loss in value. While these falls can just be transitory, sometimes they signal a longer lasting change in the rating of the stock and consequent cost of capital for the firm. It is, therefore, in the interests of company directors to reduce the risk of such an event. There are four basic steps they can take to minimize risk. First, identify what the possible