CEO beauty and management guidance

PurposeThe authors study whether CEO beauty influences management guidance.Design/methodology/approachThe authors calculate an attractiveness score based on facial symmetry and perform regression analyses to examine the relation between CEO beauty and management guidance.FindingsThe authors find that attractive CEOs are more likely to issue voluntary management earnings guidance. After controlling for this appearance-based self-selection, the authors document that management forecasts provided by attractive CEOs are more optimistic yet less precise. Consistent with this result, the authors find that analysts' consensus forecast error following management forecasts made by attractive CEOs is larger than such error following management forecasts made by unattractive CEOs. The authors further find that the perceived credibility of management forecasts by attractive CEOs is not different from that by unattractive CEOs.Originality/valueThese findings suggest that attractive CEOs are more active but less skillful in issuing management forecasts. This adds to the emerging accounting literature on the relation between facial appearance and information delivery.

Does the Equity Market Reward “Superior” Management Earnings Forecast? Evidence from the U.S. Quarterly Earnings Guidance

This paper examines whether equity markets reward the controversial practice of issuing short-term management earnings forecasts. Using a large sample of quarterly earnings forecasts, this research found that firms may temporarily reduce stock price volatility by issuing quarterly earnings forecasts. Furthermore, the analysis showed that not all guidance issuers are equally rewarded by equity capital markets. The benefits of reduced stock price volatility and favorable market valuation primarily accrue to firms with a track record of supplying accurate and timely short-term earnings forecasts. Findings suggest that superior short-term earnings guidance, which fosters transparent financial information environments and reduces investor information uncertainty, is indeed rewarded by equity capital markets. As limited research examines the association between forecast attributes and the capital market consequences of quarterly earnings guidance, this study aimed to provide empirical evidence on equity capital market rewards by issuing high-quality quarterly earnings guidance. A practical implication is that firms need to invest in accounting information systems and accounting talent in order to achieve capital market benefits of supplying high-quality short-term earnings forecasts. Keywords: quarterly earnings guidance, forecast attributes, accounting information system, equity market rewards, United States

Deposit Supply and Bank Transparency

Does a bank’s dependence on different external funding sources shape its voluntary disclosure of information? We evaluate whether economic shocks that increase the supply of bank deposits alter the cost–benefit calculations of bank managers concerning voluntary information disclosure. We measure information disclosure using 10-K filings, 8-K filings, and earnings guidance. As for the funding shock, we use unanticipated technological innovations that triggered shale development and booms in bank deposits. Further analyses suggest that greater exposure to shale development reduced information disclosure by relaxing the incentives for managers to disclose information to attract funds from external capital markets. This paper was accepted by Kay Giesecke, finance.

Earnings guidance: market pressure or corporate governance? Evidence from corporate innovation in China

Purpose This study aims to investigate whether and how earnings guidance affects corporate innovation. Design/methodology/approach Exploiting the setting of China, where the Shenzhen Stock Exchange has required all public firms listed on its ChiNext board to issue earnings guidance since 2012, this study uses a difference-in-differences (DID) methodology to examine the effect of earnings guidance on corporate innovation and further conducts cross-sectional analyzes from the information risk and monitoring demand perspectives. Moreover, the authors conduct path analysis to verify the possible channels through which corporate innovation is impeded by market pressure or improved through increased corporate transparency. Findings This study documents a positive relationship between earnings guidance and corporate innovation, as measured by the number of invention patents, indicating that the “corporate governance” hypothesis dominates in China. Cross-sectional analyzes show that this positive effect is more pronounced for firms subject to greater information risk and monitoring demand. Finally, the path analysis further confirms that earnings guidance improves innovation by increasing corporate transparency. Practical implications First, this study captures the bright side of mandatory earnings guidance and suggests that increasing the disclosure frequency can yield benefits for firms. Second, the findings imply that regulations, regardless of what they refer to, should be based on a country’s specific context. Originality/value First, this study provides evidence supporting the “corporate governance” argument based on the context of China and, thus contributes to the debate on earnings guidance. Second, this study enriches the literature on the economic consequences of earnings guidance. Third, the study extends research on the determinants of corporate innovation.

Being Counted and Remaining Accountable: Maintenance of Quarterly Earnings Guidance by U.S. Public Companies

Organizations are often pressured to adopt and maintain institutionally supported practices. Why do some companies remain committed to these practices, despite high operational cost and widespread frustration with them? Although prior theorists have emphasized the importance of institutional pressure at the broader population level, less research attention has been paid to the abandonment of a practice as a result of resource dependence between a firm and market intermediaries. In this paper, we theorize intermediary coverage breadth and depth as two important structural indicators of resource dependence. Firms lacking in coverage breadth (as indicated by the degree of reporting by market intermediaries) and firms with deeper coverage (as evidenced by a prolonged relationship with market intermediaries) are less likely to abandon a practice due to an increase in power imbalance and mutual dependence within the firm-intermediary relationships. We also theorize how a firm’s resource dependence, as determined by coverage structure, moderates the firm’s sensitivity to (1) observed peer support for the practice, (2) the intermediary’s expectation regarding the continued use of the practice, and (3) performance deviations that fail to meet intermediary expectations. Our empirical study of the abandonment of quarterly earnings guidance by U.S. public companies during 2001–2010 provides overall support for our theoretical arguments.