Determinants of Managerial Earnings Guidance Prior to Regulation Fair Disclosure and Bias in Analysts' Earnings Forecasts*

2005 ◽  
Vol 22 (4) ◽  
pp. 867-914 ◽  
Author(s):  
Amy P. Hutton
2016 ◽  
Vol 92 (5) ◽  
pp. 227-246 ◽  
Author(s):  
Tsahi Versano ◽  
Brett Trueman

ABSTRACT This paper analyzes a manager's optimal expectations management strategy in a setting in which the manager provides forecast guidance to an analyst both privately and publicly. Conventional wisdom suggests that managers use private communications with analysts and public earnings forecasts interchangeably to guide analysts' earnings forecasts downward toward lower earnings targets. Our analysis shows that in markets with rational investors, private and public guidance play very different roles in managing expectations, and that managers benefit from downward guidance only in their private communication with analysts. In their public forecasts, they benefit from introducing an upward bias. We explore how the effectiveness of the private and public channels in communicating information to analysts affects managers' incentive to engage in expectations management, and provide a number of empirical predictions. Among other results, we show how reducing private communication between managers and analysts (through means such as Regulation Fair Disclosure) can increase price efficiency, weaken managers' motivation to engage in private, as well as public, expectations management, and increase managers' motivation to provide public disclosures.


2007 ◽  
Vol 82 (5) ◽  
pp. 1299-1332 ◽  
Author(s):  
Isabel Yanyan Wang

This study investigates three related questions: (1) Why did some firms provide private earnings guidance to analysts before Regulation Fair Disclosure? (2) How did the exogenous shock of Regulation Fair Disclosure affect these firms' disclosure policies? (3) What are the economic consequences of this disclosure regulation? To address these questions, I develop a new measure of private earnings guidance. Consistent with theory, I find that firms were more likely to provide private earnings guidance if they had higher proprietary information costs, and if their earnings were more predictive of other firms' earnings. Policymakers enacted Regulation Fair Disclosure to stop private earnings guidance, but they also intended for managers to replace private earnings guidance with public earnings guidance, thereby improving the information environment. However, I find that roughly half of the firms that I classify as relying more on private earnings guidance replace private earnings guidance with non-disclosure instead of public earnings guidance, and as a result, these firms suffer significant deterioration in their information environments. Consistent with theory, firms are more likely to replace private earnings guidance with nondisclosure if they have lower information asymmetry and higher proprietary information costs. On the other hand, firms that replace private earnings guidance with public earnings guidance, on average, prevent significant deterioration in their information environments. Evidence that firms respond to disclosure regulation as predicted by theory can help policymakers anticipate which firms' information environments are likely to be adversely affected by new disclosure regulations.


Author(s):  
Susan M. Albring ◽  
Monica L. Banyi ◽  
Dan S. Dhaliwal ◽  
Raynolde Pereira

2012 ◽  
Author(s):  
Yutao Li ◽  
Anthony Saunders ◽  
Pei Shao

2020 ◽  
Author(s):  
Kai Wai Hui ◽  
Alfred Z. Liu ◽  
Yao Zhang

This study documents a stock return premium for meeting or beating management's own earnings guidance (MBMG) that is separate and distinct from the premium for meeting or beating analysts' earnings forecasts (MBAF) documented in prior literature. Cross-sectional analyses reveal that the MBMG premium relative to the MBAF premium increases when management guidance is more informative. We also find that MBMG is incrementally informative about a firm's future performance after considering MBAF. Our findings suggest that investors consider management earnings guidance to be a performance threshold in addition to analyst earnings forecasts when forming earnings expectations.


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