Is silence golden? An empirical analysis of firms that stop giving quarterly earnings guidance

Chen, Shuping; Matsumoto, Dawn A.; Rajgopal, Shiva

doi:10.1016/j.jacceco.2010.10.006

Cited by 282 publications

(217 citation statements)

References 45 publications

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“…Influential organizations, including the Business Roundtable and the US Chamber of Commerce, along with business leaders such as Warren Buffett and John Bogle, have urged firms to stop providing quarterly earnings guidance. Academic research finds that guidance cessation often follows poor performance and has negative consequences for the firm's information environment (Houston et al, ; and Chen et al, ). Little attention has been paid to an alternative proposal: providing disaggregated earnings guidance (DEG), i.e., simultaneous guidance for earnings, revenue and key expenses.…”

Section: Introductionmentioning

confidence: 99%

Causes and Consequences of Disaggregating Earnings Guidance

Lansford

Lev

Tucker

2013

Business Fin & Account

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Whether managers should provide earnings guidance, especially quarterly guidance, has been a hotly debated policy issue. Influential organizations have urged firms to stop providing earnings guidance to reduce earnings fixation and short‐termism in the capital markets. Little attention has been paid to an alternative proposal: instead of ceasing earnings guidance, companies could provide disaggregated earnings guidance. No archival evidence exists regarding the determinants of disaggregated earnings guidance and its effects on the firm and its information environment. We find that once managers provide guidance, the decision to disaggregate this guidance is primarily driven by demand‐and‐supply factors that exhibit little change from year to year rather than by strategic factors. We find more timely analyst forecast revisions (with no compromise of forecast accuracy), a greater magnitude of revisions, and a larger reduction in analyst disagreement for disaggregating firms than for non‐disaggregating firms. These findings suggest that disaggregation enriches a firm's information environment. We also find that disaggregation helps managers align analyst expectations with their own, but firms are punished by investors for providing multiple performance targets but missing them.

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Section: Introductionmentioning

confidence: 99%

Causes and Consequences of Disaggregating Earnings Guidance

Lansford

Lev

Tucker

2013

Business Fin & Account

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“…Our study has implications for the debate regarding whether quarterly earnings guidance practice should be terminated (Chen, Matsumoto, and Rajgopal [2011], Houston, Lev, and Tucker [2010], Miller [2009]), and for managers and regulators deliberating on the costs and benefits of issuing frequent earnings guidance. We provide evidence on the potential deleterious effects of frequent earnings guidance on firm value creation.…”

Section: Discussionmentioning

confidence: 99%

The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions

Wang

Tan

2012

J of Accounting Research

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We conduct an experiment to examine the effects of guidance frequency (frequent vs. infrequent) and guidance goal (accuracy vs. meet/beat vs. truthful) on managers’ operating decisions. We find that frequent guiders sacrifice total earnings for quarterly earnings predictability irrespective of their guidance goals. Furthermore, when guidance is infrequent, guiders with accuracy goals opt for quarterly earnings predictability over total earnings more often than do guiders with either meet/beat goals or truthful goals. These findings have implications for regulators and investors in terms of the unintended consequences of requesting frequent earnings guidance. Further, while managers may perceive that accuracy goals can help their firms establish forecasting and reporting reputations, we show that accuracy goals may result in dysfunctional internal managerial decisions, particularly when guidance is issued infrequently.

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“…It has also been reported that over 95 % of changes to consensus analyst forecasts in the course of a fiscal year can be explained by management forecasts. Source: Table 3; Table 3 5 Chen et al (2011) claim that analysts cannot produce information at the same level as companies do, even if they have other sources of information. However, since the former are not disclosed in a timely manner, the latter play a complementary role which compensates for lack of timeliness."…”

Section: Importance Of Earnings Forecastsmentioning

confidence: 99%