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Career Concerns and Management Earnings Guidance

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  • Suil Pae
  • Chang Joon Song
  • Andrew C. Yi

Abstract

This study provides evidence that managers' career concerns affect their earnings guidance decisions. We hypothesize that CEOs who are relatively more concerned about assessments of their abilities have stronger incentives to guide the market expectations of earnings downwards to increase the likelihood of meeting or beating the expectations. Consistent with this hypothesis, we find that (i) short†tenured CEOs, CEOs promoted from inside the firm, and nonfounder CEOs are more likely to provide downward earnings guidance when they have bad news, and (ii) their downward guidance tends to be more conservative. In response, analysts revise earnings forecasts less for the downward guidance provided by more career†concerned CEOs. This indicates that analysts rationally incorporate these CEOs' stronger incentives to be conservative in their earnings guidance. Consequently, we find that CEOs with greater career concerns are not more likely to beat the market expectations, even when they provide more conservative downward guidance.

Suggested Citation

  • Suil Pae & Chang Joon Song & Andrew C. Yi, 2016. "Career Concerns and Management Earnings Guidance," Contemporary Accounting Research, John Wiley & Sons, vol. 33(3), pages 1172-1198, September.
    • Handle: RePEc:wly:coacre:v:33:y:2016:i:3:p:1172-1198
    DOI: 10.1111/1911-3846.12182
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    Cited by:

    1. Burney, Robert B. & James, Hui Liang & Wang, Hongxia, 2021. "Working capital management and CEO age," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    2. Lamia Chourou & Luo He & Ligang Zhong, 2020. "Does religiosity enhance the quality of management earnings forecasts?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(7-8), pages 910-948, July.
    3. Kexing Ding & Bikki Jaggi, 2022. "CEO career concerns and the precision of management earnings forecasts," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 69-100, January.
    4. Nengqi Pan & Millicent Chang & Xiaofei Pan, 2024. "Career concerns and earnings management in government‐owned banks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 475-506, March.
    5. Yaqin Hu, 2023. "Local CEOs, career concerns and voluntary disclosure," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 565-597, March.

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