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

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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.
Publisher
SPRINGER
Issue Date
2017-06
Language
English
Article Type
Article
Keywords

REAL ACTIVITIES MANIPULATION; INSTITUTIONAL INVESTORS; INFORMATION ASYMMETRY; CORPORATE DISCLOSURE; MANAGERIAL MYOPIA; CAPITAL-MARKETS; STOCK RETURNS; MANAGEMENT; FORECASTS; CONSEQUENCES

Citation

REVIEW OF ACCOUNTING STUDIES, v.22, no.2, pp.715 - 752

ISSN
1380-6653
DOI
10.1007/s11142-017-9397-z
URI
http://hdl.handle.net/10203/244341
Appears in Collection
MT-Journal Papers(저널논문)
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