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

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

4 Scopus Citations
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Original languageEnglish
Pages (from-to)715-752
Journal / PublicationReview of Accounting Studies
Volume22
Issue number2
Early online date28 Apr 2017
Publication statusPublished - Jun 2017

Abstract

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.

Research Area(s)

  • Earnings guidance, Investor short-termism, Management forecasts, Managerial myopia, Voluntary disclosure