IDEAS home Printed from https://ideas.repec.org/a/bla/joares/v51y2013i3p673-700.html
   My bibliography  Save this article

The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions

Author

Listed:
  • ELAINE YING WANG
  • HUN‐TONG TAN

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.

Suggested Citation

  • Elaine Ying Wang & Hun‐Tong Tan, 2013. "The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 51(3), pages 673-700, June.
  • Handle: RePEc:bla:joares:v:51:y:2013:i:3:p:673-700
    DOI: 10.1111/j.1475-679X.2012.00470.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1475-679X.2012.00470.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.1475-679X.2012.00470.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fischer, Gregory W., 1995. "Range Sensitivity of Attribute Weights in Multiattribute Value Models," Organizational Behavior and Human Decision Processes, Elsevier, vol. 62(3), pages 252-266, June.
    2. Kanodia, Chandra, 2007. "Accounting Disclosure and Real Effects," Foundations and Trends(R) in Accounting, now publishers, vol. 1(3), pages 167-258, October.
    3. Joel F. Houston & Baruch Lev & Jennifer Wu Tucker, 2010. "To Guide or Not to Guide? Causes and Consequences of Stopping Quarterly Earnings Guidance," Contemporary Accounting Research, John Wiley & Sons, vol. 27(1), pages 143-185, March.
    4. Coller, M & Yohn, TL, 1997. "Management forecasts and information asymmetry: An examination of bid-ask spreads," Journal of Accounting Research, Wiley Blackwell, vol. 35(2), pages 181-191.
    5. Rogers, Jonathan L. & Skinner, Douglas J. & Van Buskirk, Andrew, 2009. "Earnings guidance and market uncertainty," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 90-109, October.
    6. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    7. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    8. Irene Karamanou & Nikos Vafeas, 2005. "The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 453-486, June.
    9. Hun‐Tong Tan & Robert Libby & James E. Hunton, 2002. "Retracted: Analysts’ Reactions to Earnings Preannouncement Strategies," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 223-246, March.
    10. HUN†TONG TAN & ROBERT Libby & JAMES E. HUNTON, 2010. "Retracted: When Do Analysts Adjust for Biases in Management Guidance? Effects of Guidance Track Record and Analysts’ Incentives," Contemporary Accounting Research, John Wiley & Sons, vol. 27(1), pages 187-208, March.
    11. Leuz, C & Verrecchia, RE, 2000. "The economic consequences of increased disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 91-124.
    12. Diamond, Douglas W & Verrecchia, Robert E, 1991. "Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-1359, September.
    13. Goldstein, William M., 1990. "Judgments of relative importance in decision making: Global vs local interpretations of subjective weight," Organizational Behavior and Human Decision Processes, Elsevier, vol. 47(2), pages 313-336, December.
    14. Trueman, Brett, 1986. "Why do managers voluntarily release earnings forecasts?," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 53-71, March.
    15. Hun†Tong Tan & Robert Libby & James E. Hunton, 2010. "When Do Analysts Adjust for Biases in Management Guidance? Effects of Guidance Track Record and Analysts’ Incentives," Contemporary Accounting Research, John Wiley & Sons, vol. 27(1), pages 5-5, March.
    16. Julie Cotter & Irem Tuna & Peter D. Wysocki, 2006. "Expectations Management and Beatable Targets: How Do Analysts React to Explicit Earnings Guidance?," Contemporary Accounting Research, John Wiley & Sons, vol. 23(3), pages 593-624, September.
    17. Bipin Ajinkya & Sanjeev Bhojraj & Partha Sengupta, 2005. "The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 343-376, June.
    18. Joseph Fuller & Michael C. Jensen, 2010. "Just Say No to Wall Street: Putting a Stop to the Earnings Game," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 59-63, January.
    19. Chen, Shuping & Matsumoto, Dawn & Rajgopal, Shiva, 2011. "Is silence golden? An empirical analysis of firms that stop giving quarterly earnings guidance," Journal of Accounting and Economics, Elsevier, vol. 51(1-2), pages 134-150, February.
    20. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    21. Joel F. Houston & Baruch Lev & Jennifer Wu Tucker, 2010. "To Guide or Not to Guide? Causes and Consequences of Stopping Quarterly Earnings Guidance," Contemporary Accounting Research, John Wiley & Sons, vol. 27(1), pages 4-4, March.
    22. Chen, Shuping & Matsumoto, Dawn & Rajgopal, Shiva, 2011. "Is silence golden? An empirical analysis of firms that stop giving quarterly earnings guidance," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 134-150.
    23. Kasznik, R, 1999. "On the association between voluntary disclosure and earnings management," Journal of Accounting Research, Wiley Blackwell, vol. 37(1), pages 57-81.
    24. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Libby, Robert & Rennekamp, Kristina M. & Seybert, Nicholas, 2015. "Regulation and the interdependent roles of managers, auditors, and directors in earnings management and accounting choice," Accounting, Organizations and Society, Elsevier, vol. 47(C), pages 25-42.
    2. Han, Jun, 2013. "A literature synthesis of experimental studies on management earnings guidance," Journal of Accounting Literature, Elsevier, vol. 31(1), pages 49-70.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kristian D. Allee & Theodore E. Christensen & Bryan S. Graden & Kenneth J. Merkley, 2021. "The Genesis of Voluntary Disclosure: An Analysis of Firms’ First Earnings Guidance," Management Science, INFORMS, vol. 67(3), pages 1914-1938, March.
    2. Yongtae Kim & Lixin (Nancy) Su & Xindong (Kevin) Zhu, 2017. "Does the cessation of quarterly earnings guidance reduce investors’ short-termism?," Review of Accounting Studies, Springer, vol. 22(2), pages 715-752, June.
    3. Billings, Mary Brooke & Jennings, Robert & Lev, Baruch, 2015. "On guidance and volatility," Journal of Accounting and Economics, Elsevier, vol. 60(2), pages 161-180.
    4. Seo, Hojun, 2021. "Peer effects in corporate disclosure decisions," Journal of Accounting and Economics, Elsevier, vol. 71(1).
    5. Francois Brochet & Lucile Faurel & Sarah Mcvay, 2011. "Manager‐Specific Effects on Earnings Guidance: An Analysis of Top Executive Turnovers," Journal of Accounting Research, Wiley Blackwell, vol. 49(5), pages 1123-1162, December.
    6. Ruth V. Aguilera & Kurt A. Desender & Mónica López-Puertas Lamy & Jun Ho Lee, 2017. "The governance impact of a changing investor landscape," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 195-221, February.
    7. Liao, Chih-Hsien & San, Ziyao & Tsang, Albert, 2024. "Corporate governance reforms and voluntary disclosure: International evidence on management earnings forecasts," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    8. Kannan, Yezen & Khallaf, Ashraf & Gleason, Kimberly & Bostan, Ibrahim, 2023. "The relationship between R&D intensity, conservatism, and management earnings forecast issuance," Advances in accounting, Elsevier, vol. 62(C).
    9. Bozanic, Zahn & Roulstone, Darren T. & Van Buskirk, Andrew, 2018. "Management earnings forecasts and other forward-looking statements," Journal of Accounting and Economics, Elsevier, vol. 65(1), pages 1-20.
    10. Karthik Balakrishnan & Mary Brooke Billings & Bryan Kelly & Alexander Ljungqvist, 2014. "Shaping Liquidity: On the Causal Effects of Voluntary Disclosure," Journal of Finance, American Finance Association, vol. 69(5), pages 2237-2278, October.
    11. Agapova, Anna & Madura, Jeff, 2016. "Market uncertainty and earnings guidance," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 97-111.
    12. Shota Otomasa & Atsushi Shiiba & Akinobu Shuto, 2015. "Management Earnings Forecasts as a Performance Target in Executive Compensation Contracts," CARF F-Series CARF-F-368, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    13. Heitzman, Shane & Wasley, Charles & Zimmerman, Jerold, 2010. "The joint effects of materiality thresholds and voluntary disclosure incentives on firms' disclosure decisions," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 109-132, February.
    14. Tuo, Ling & Rezaee, Zabihollah & Gao, Lei, 2024. "Is there a tradeoff between management earnings forecasts and sustainability reporting?," Global Finance Journal, Elsevier, vol. 59(C).
    15. Wang, Fengrong & Mbanyele, William & Muchenje, Linda, 2022. "Economic policy uncertainty and stock liquidity: The mitigating effect of information disclosure," Research in International Business and Finance, Elsevier, vol. 59(C).
    16. Jaehong Lee & Eunjoo Cho & Jong Sung Park, 2019. "Towards a More Transparent Disclosure for Corporate Sustainability: Focusing on the Regulation of Unfaithful Disclosure Designation," Sustainability, MDPI, vol. 11(22), pages 1-26, November.
    17. Chen, Jing & Jung, Michael J. & Tang, Michael, 2023. "Does lowball guidance work? An analysis of firms that consistently beat their guidance by large margins," The British Accounting Review, Elsevier, vol. 55(6).
    18. Jennifer Francis & Dhananjay Nanda & Per Olsson, 2008. "Voluntary Disclosure, Earnings Quality, and Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 53-99, March.
    19. Cohen, Lee Jeremy & Marcus, Alan J. & Rezaee, Zabihollah & Tehranian, Hassan, 2018. "Waiting for guidance: Disclosure noise, verification delay, and the value-relevance of good-news versus bad-news management earnings forecasts," Global Finance Journal, Elsevier, vol. 37(C), pages 79-99.
    20. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:joares:v:51:y:2013:i:3:p:673-700. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.