The Rewards for Meeting or Beating Managers' Own Earnings Guidance

2020 ◽  
Author(s):  
Kai Wai Hui ◽  
Alfred Z. Liu ◽  
Yao Zhang
Keyword(s):  
Stock Return ◽  
Earnings Forecasts ◽  
Earnings Guidance ◽  
Cross Sectional ◽  
Earnings Expectations ◽  
Future Performance ◽  
Management Guidance ◽  
Prior Literature ◽  
Management Earnings Guidance ◽  
Analyst Earnings

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.

Annual Earnings Guidance and the Smoothing of Analysts’ Multi-Period Forecasts

2020 ◽  
pp. 0148558X2094557
Author(s):  
Jianchuan Luo ◽  
Joshua Ronen ◽  
Ron Shalev ◽  
Michael (Minye) Tang
Keyword(s):  
Capital Market ◽  
Earnings Forecasts ◽  
Analyst Forecasts ◽  
Earnings Guidance ◽  
Long Term Effects ◽  
Earnings Expectations ◽  
Analyst Earnings ◽  
Annual Earnings ◽  
Market Benefits

This article examines the use of annual earnings guidance as a mechanism used by managers to reduce the volatility of analyst earnings forecasts and allow them to report smooth earnings without missing quarterly analyst forecasts. Facing the pressure to meet or beat analyst forecasts and driven by the perceived capital market benefits of reporting a smooth earnings path, managers attempting to influence investors’ earnings expectations over a longer horizon can issue annual guidance to smooth the time-series path of analyst forecasts, a strategy we term as “expectation smoothing.” Our empirical results suggest that annual guidance reduces the volatility of analysts’ multi-period forecasts, which in turn contributes to a smoother actual earnings and higher likelihood of meeting analysts’ quarterly forecasts. We also find that issuing quarterly guidance does not affect the smoothness of analysts’ earnings expectations and that managers with longer horizons are more likely to issue annual guidance, consistent with the unique long-term effects of annual earnings guidance.

(Dis)aggregated earnings forecasts and acquisition financing

2019 ◽  
Vol 28 (2) ◽  
pp. 255-271
Author(s):  
Paul Ordyna
Keyword(s):  
Voluntary Disclosure ◽  
Logistic Model ◽  
Earnings Forecasts ◽  
Merger And Acquisition ◽  
Management Forecasts ◽  
Earnings Guidance ◽  
Content Type ◽  
True Value ◽  
Acquiring Firms ◽  
Management Guidance

Purpose The purpose of this paper is to examine how a firm’s mergers and acquisitions (M&A) goals influence its voluntary disclosure policy. Specifically, this paper examines how a firm’s M&A financing intentions influence the degree of aggregation in management guidance prior to and after the M&A transaction. Design/methodology/approach Using a logistic model, this study tests the relation between M&A financing and the decision to issue disaggregate earnings guidance for 3,929 acquiring firms from 2007 to 2011. Findings The logistic regression results show that firms are more likely to provide disaggregate earnings guidance when using mostly stock to finance M&A and that the incentives to disaggregate guidance vary throughout the M&A transactional window. Alternatively, because the value of cash is independent of the true value of the acquirer, the results show that firms offering mostly cash to finance M&A are less likely to issue disaggregate earnings forecasts. Additional analysis reveals that the decision to issue disaggregate earnings guidance also influences post-merger outcomes such as CEO turnover. Research limitations/implications The choice to disaggregate earnings guidance and the choice to use stock as a means to finance an acquisition is made by management, thus are endogenous which could introduce bias. Originality/value This study provides insights into management’s incentives and attitudes toward the use of management forecasts to effect a potential merger and acquisition. Given the flexibility management has in issuing voluntary forecasts, management can tailor a financial message toward investors and potential targets in attempt to facilitate a merger and acquisition and to further the firm’s goals.

Does the Form of Management's Earnings Guidance Affect Analysts' Earnings Forecasts? (Retracted)

2006 ◽  
Vol 81 (1) ◽  
pp. 207-225 ◽  
Author(s):  
Robert Libby ◽  
Hun-Tong Tan ◽  
James E. Hunton
Keyword(s):  
Narrow Range ◽  
Earnings Forecasts ◽  
Point Estimate ◽  
Earnings Guidance ◽  
Earnings Announcement ◽  
Wide Range ◽  
Information Precision ◽  
Management Guidance ◽  
Psychology Literature ◽  
Relationship Of

This study examines how the form of management's earnings guidance (point, narrow range, wide range) affects analysts' earnings forecasts. Results from two experiments demonstrate that: (1) guidance form has no effect on analysts' forecasts made immediately after the guidance; and (2) after the actual earnings announcement, guidance form and the relationship of the earnings guidance to actual earnings (guidance error) interact in their effect on analysts' forecasts. After the actual earnings announcement, guidance error leads to higher (lower) analysts' forecasts for firms with downwardly (upwardly) biased guidance; this effect of guidance error is magnified by a narrow range and reduced by a wide range, compared to a point estimate. These results suggest that treating the mean of the range endpoints as equivalent to a point estimate and failing to consider effects after the release of actual earnings may paint an incomplete picture of how management guidance affects analysts and investors. It also offers useful information to managers who issue earnings guidance, and presents a challenge to the psychology literature regarding the effects of information precision on judgment and decision making.

Aggregate Earnings Expectations and Stock Market Behavior

1987 ◽  
Vol 2 (2) ◽  
pp. 117-137 ◽  
Author(s):  
Dan Givoly ◽  
Josef Lakonishok
Keyword(s):  
Stock Market ◽  
Earnings Forecasts ◽  
Rate Of Return ◽  
Price Behavior ◽  
Market Behavior ◽  
Cross Sectional ◽  
Earnings Expectations ◽  
Market Rate ◽  
Weak Association ◽  
Degree Of Association

The paper examines the degree of association between cross-sectional aggregate measures of earnings forecasts and the market rate of return. Various measures of “market” earnings forecasts are devised. The results indicate that while changes in earnings forecasts of individual companies are correlated with the price behavior of the respective stocks, very weak association exists between the aggregate measure of earnings forecasts and the market rate of return. This lack of association (which suggests that information on aggregate changes in earnings forecasts is not very useful to investors) is due primarily to the very low commonality in the revisions of earnings forecasts across companies.

Diversified Firms and Analyst Earnings Forecasts: The Role of Management Guidance at the Segment Level

2019 ◽  
Vol 18 (3) ◽  
pp. 1-38 ◽  
Author(s):  
Paul André ◽  
Andrei Filip ◽  
Rucsandra Moldovan
Keyword(s):  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Group Level ◽  
Financial Analyst ◽  
Management Guidance ◽  
Analyst Earnings ◽  
Diversified Firms ◽  
Matched Samples

ABSTRACT Using a unique, manually collected dataset, we are the first to analyze the role that management guidance at the segment level plays for the financial analyst earnings forecasts of diversified firms. About half of the diversified European firms in the sample provide segment-level guidance (SLG), with considerable variation in precision and disaggregation. We find that (1) analyst earnings forecast errors are smaller, and (2) the magnitude of disagreement between individual forecasts and the average forecast is lower for firms that provide SLG, beyond the effect of group-level guidance. The results hold in matched samples and within-firm analyses around SLG initiation. We further show that the results are stronger in situations characterized by higher information asymmetry, but not in situations characterized by operational complexity. Overall, the results imply that SLG mitigates, to some extent, the difficult task that financial analysts face when valuing diversified companies.

Stock Price Jumps and Cross-Sectional Return Predictability

2013 ◽  
Vol 48 (5) ◽  
pp. 1519-1544 ◽  
Author(s):  
George J. Jiang ◽  
Tong Yao
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Stock Return ◽  
Return Predictability ◽  
Value Premium ◽  
The Other ◽  
Stock Return Predictability ◽  
Cross Sectional ◽  
Return Dynamics

AbstractWe identify large discontinuous changes, known as jumps, in daily stock prices and explore the role of jumps in cross-sectional stock return predictability. Our results show that small and illiquid stocks have higher jump returns to the extent that cross-sectional differences in jumps fully account for the size and illiquidity effects. Based on value-weighted portfolios, jumps also account for the value premium. On the other hand, jumps are not the cause of momentum or net share issue effects. The findings of our study shed new light on stock return dynamics and present challenges to conventional explanations of stock return predictability.

Sign in / Sign up

Export Citation Format

Share Document