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
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
Language
English
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