Is Earnings Guidance Associated with Less Firm Innovation?

Chen, Shuping; Huang, Kelly; Lao, Brent

doi:10.2139/ssrn.2546827

Cited by 9 publications

(7 citation statements)

References 31 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…(2011) and Houston et al (2010) show that quarterly guidance cessation harms the firm's information environment. Call et al (2014) and Chen et al (2015) show that short-term guidance issuers manage earnings less and are better innovators, affirming the benefits of short-term guidance. Our analyses provide evidence pointing to the costs of short-term guidance.…”

Section: Resultsmentioning

confidence: 89%

See 1 more Smart Citation

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Kim

Zhu

2017

Rev Account Stud

View full text Add to dashboard Cite

The practice of providing quarterly earnings guidance has been criticized for encouraging investors to fixate on short-term earnings and encouraging managerial myopia. Using data from the post-Regulation Fair Disclosure period, we examine whether the cessation of quarterly earnings guidance reduces short-termism among investors. We show that, after guidance cessation, investors in firms that stop quarterly guidance are composed of a larger (smaller) proportion of long-term (short-term) institutions, put more (less) weight on long-term (short-term) earnings in firm valuation, become more (less) sensitive to analysts' long-term (short-term) earning forecast revisions, and are less likely to dismiss chief executive officers for missing quarterly earnings targets by small amounts, relative to investors in firms that continue to issue quarterly earnings guidance. Our study provides new evidence of the benefit of stopping quarterly earnings guidance, that is, the reduction of short-termism among investors.

show abstract

Section: Resultsmentioning

confidence: 89%

“…short-term guidance. Prior studies focus on the relation between short-term guidance and management myopia, and the evidence is mixed (Cheng et al 2007;Call et al 2014;Chen et al 2015). Quarterly earnings guidance attracts short-term-oriented investors, and investor myopia can fuel managerial myopia.…”

Section: Introductionmentioning

confidence: 99%

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Kim

Zhu

2017

Rev Account Stud

View full text Add to dashboard Cite

show abstract

“…Recent research shows that, contrary to popular belief, firms issuing quarterly guidance exhibit less, not more, accruals earnings management (Call et al 2014). In addition, concurrent research shows that guidance firms generate a higher number of patents and patent citations when compared to non-guiders (Chen, Huang, and Lao 2014). The greater extent of innovation exists not only when firms give annual guidance, but also when firms give quarterly guidance.…”

Section: Resultsmentioning

confidence: 98%

“…Chen, Matsumoto, and Rajgopal (2011) and Houston, Lev, and Tucker (2010) find that when firms cease earnings guidance, analyst earnings forecast accuracy declines and forecast dispersion increases, impairing the quality of information available to investors. 3 More recently, Call, Chen, Miao, and Tong (2014) find that firms issuing short-term quarterly guidance actually exhibit less, not more earnings management, and Chen, Huang, and Lao (2014) find that guidance firms report more future innovations than non-guidance firms, and that quarterly guidance has a positive incremental impact on future innovation over annual guidance. We extend this literature by evaluating the potential impact of one of the highly touted alternatives to short-term guidance, and find that long-term guidance has no discernable effect on earnings management activity or on investment decisions.…”

Section: Introductionmentioning

confidence: 99%

Does Long-Term Earnings Guidance Mitigate Managerial Myopia?

Call,

Chen,

Esplin

et al. 2015

SSRN Journal

Self Cite

View full text Add to dashboard Cite

“…For example, Karageorgiou and Serafeim (2014) point out that such practices could involve substantial associated costs, such as increased shorttermism and earnings management, analyst herding and insider trading. Chen et al (2015) document, however, that firms that provide earnings guidance exhibit a greater number of future patents and citations than non-guiders. Clearly, more research is called for to understand the role of management guidance in the motivation and reward of CEOs.…”

Section: Conclusion Remarksmentioning

confidence: 99%

Earnings Warnings and CEO Welfare

Wang

Darrough

Shi³

2016

Business Fin & Account

View full text Add to dashboard Cite

Some CEOs decide voluntarily to issue a warning when they expect a negative earnings surprise. Prior research suggests that warnings contain incremental information beyond actual earnings; warning firms tend to experience permanent earnings decreases. This paper investigates whether compensation committees take warnings into account in setting CEO compensation. We find that warnings are significantly negatively (positively) associated with CEO bonus (option grants), suggesting that compensation committees adjust CEO compensation towards a more high‐powered structure after warnings. However, the sensitivity of bonus or option grants to earnings and stock returns is not affected except for bonus sensitivity to stock returns. We also find weak evidence of an increase in forced CEO turnover after warnings, accompanied by a significant increase in its sensitivity to stock returns. This benefits CEOs with higher ability but imposes more risk on other CEOs. These findings provide a partial explanation of why not every CEO facing a negative surprise decides to issue a warning. Our results are robust to various specifications. In particular, the impact of warnings on compensation appears invariant to the timing or the number of warnings. Overall, these findings suggest that the signal from warnings is used in determining CEO compensation and retention.

show abstract

Is Earnings Guidance Associated with Less Firm Innovation?

Cited by 9 publications

References 31 publications

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Does Long-Term Earnings Guidance Mitigate Managerial Myopia?

Earnings Warnings and CEO Welfare

Contact Info

Product

Resources

About