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

Yongtae KIM, Lixin, Nancy SU, Xindong (Kevin) ZHU

Research output: Journal PublicationsJournal Article (refereed)

4 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)715-752
Number of pages38
JournalReview of Accounting Studies
Volume22
Issue number2
Early online date28 Apr 2017
DOIs
Publication statusPublished - Jun 2017

Bibliographical note

Authors acknowledge the financial support of Hong Kong General Research Fund (Grant No. 597013).

Keywords

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

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