IDEAS home Printed from https://ideas.repec.org/a/wly/coacre/v27y2010i1p4-4.html
   My bibliography  Save this article

To Guide or Not to Guide? Causes and Consequences of Stopping Quarterly Earnings Guidance

Author

Listed:
  • JOEL F. HOUSTON
  • BARUCH LEV
  • JENNIFER WU TUCKER

Abstract

In recent years, quarterly earnings guidance has been harshly criticized for inducing “managerial short†termism†and other ills. Managers are, therefore, urged by influential institutions to cease guidance. We examine empirically the causes of such guidance cessation and find that poor operating performance — decreased earnings, missing analyst forecasts, and lower anticipated profitability — is the major reason firms stop quarterly guidance. After guidance cessation, we do not find an appreciable increase in long†term investment once managers free themselves from investors’ myopia. Contrary to the claim that firms would provide more alternative, forward†looking disclosures in lieu of the guidance, we find that such disclosures are curtailed. We also find a deterioration in the information environment of guidance stoppers in the form of increased analyst forecast errors and forecast dispersion and a decrease in analyst coverage. Taken together, our evidence indicates that guidance stoppers are primarily troubled firms and stopping guidance does not benefit either the stoppers or their investors.

Suggested Citation

  • 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.
  • Handle: RePEc:wly:coacre:v:27:y:2010:i:1:p:4-4
    DOI: 10.1111/j.1911-3846.2010.01010_4.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1911-3846.2010.01010_4.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.1911-3846.2010.01010_4.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
    ---><---

    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:wly:coacre:v:27:y:2010:i:1:p:4-4. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: https://doi.org/10.1111/(ISSN)1911-3846 .

    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.