The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions

Abstract

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.

The Joint Effect of Accounting Knowledge and Self-serving Attribution on the Voluntary Disclosure of Management Earnings Forecast

“…To ensure that all participants understand the function and influence of management earnings forecasts on capital markets, and that they have sufficient knowledge to complete the required task, the participants' management earnings forecast knowledge, is also tested through a post-experimental questionnaire which has been adapted from Wang and Tan (2013). The questionnaire is further reviewed for validity by an assistant Vice President who is related to a listed company in Thailand.…”

“…In general, managers have their own personal preferences and concerns with regards to the disclosure of earnings forecasts (Aboody & Kasznik, 2000;Hirst et al, 2008;Kothari et al, 2009;Wang & Tan, 2013). In the current study, participants are asked to respond to six additional postexperimental Likert-scale questions (debriefing questions) which emphasise on the ramifications associated with their disclosure and nondisclosure decisions.…”

“…The findings are consistent with prior evidence. This indicates that some managers intend to issue biased earnings forecasts to meet or beat market expectations (Aboody & Kasznik, 2000;Wang & Tan, 2013).…”