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

Authors

Yongtae Kim, Santa Clara UniversityFollow
Lixin (Nancy) Su
Xindong (Kevin) Zhu

Document Type

Article

Publication Date

4-28-2017

Publisher

Springer International Publishing AG

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.

Comments

The final publication is available at Springer via https://doi.org/10.1007/s11142-017-9397-z.

Recommended Citation

Kim, Y., Su, L. (Nancy), & Zhu, X. (Kevin). (2017). Does the cessation of quarterly earnings guidance reduce investors’ short-termism? Review of Accounting Studies, 22(2), 715–752.