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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27472
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| Title: | To Guide Or Not to Guide? Causes and Consequences of Stopping Quarterly
Earnings Guidance |
| Authors: | Houston, Joel F.
Lev, Baruch
Tucker, Jennifer W. |
| Keywords: | earnings guidance
voluntary disclosure
managerial myopia
guidance cessation |
| Issue Date: | Feb-2008 |
| Series/Report no.: | Baruch Lev-12 |
| Abstract: | In recent years, quarterly earnings guidance has been harshly criticized
for inducing managerial short-termism and other ills. Managers are,
therefore, urged by influential institutions to cease guidance. We
examine empirically the causes of such guidance cessation and find that
poor operating performance¿decreased earnings, missing analyst
forecasts, and lower anticipated profitability¿is the major
reason firms stop quarterly guidance. After guidance cessation, we do
not find an appreciable increase in long-term investment once managers
free themselves from investors' myopia. Contrary to the claim that firms
would provide more alternative, forward-looking disclosures in lieu of
the guidance, we find that such disclosures are curtailed. We also find
a deterioration in the information environment of guidance stoppers in
the form of increased analyst forecast errors and forecast dispersion
and a decrease in analyst coverage. Taken together, our evidence
indicates that guidance stoppers are primarily troubled firms and
stopping guidance does not benefit either the stoppers or their investors. |
| URI: | http://hdl.handle.net/2451/27472 |
| Appears in Collections: | Accounting Working Papers
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