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The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions

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  • 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.

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  • 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
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    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.

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