Title

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

Document Type

Journal article

Source Publication

Review of Accounting Studies

Publication Date

6-2017

Volume

22

Issue

2

First Page

715

Last Page

752

Publisher

Springer New York LLC

Keywords

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

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.

DOI

10.1007/s11142-017-9397-z

Language

English

Print ISSN

13806653

E-ISSN

15737136

Funding Information

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

Publisher Statement

Copyright © Springer Science+Business Media New York 2017. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Kim, Y., Su, L. & Zhu, X. (2017). Does the cessation of quarterly earnings guidance reduce investors’ short-termism? Review of Accounting Studies, 22(2), 715–752. doi: 10.1007/s11142-017-9397-z

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