The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions


  • Accepted by Philip Berger. We appreciate helpful comments from an anonymous reviewer, Chris Agoglia, Chi-Yue Chiu, Harry Evans, Mei Feng, Jeffery Hales, Vicky Hoffman, Bin Ke, Jane Kennedy, Lisa Koonce, Tamara Lambert, Clive Lennox, Bob Libby, Donald Moser, Terence Ng, David Piercey, Seet-Koh Tan, Shankar Venkataraman, and workshop participants at Nanyang Technological University, Georgia Institute of Technology, Northeastern University, University of Massachusetts Amherst, and University of Pittsburgh. We thank Stephen Kuselias and Jessica Osgood for research assistance.


We conduct an experiment to examine the effects of guidance frequency (frequent vs. infrequent) and guidance goal (accuracy vs. meet/beat vs. truthful) on managers’ operating decisions. We find that frequent guiders sacrifice total earnings for quarterly earnings predictability irrespective of their guidance goals. Furthermore, when guidance is infrequent, guiders with accuracy goals opt for quarterly earnings predictability over total earnings more often than do guiders with either meet/beat goals or truthful goals. These findings have implications for regulators and investors in terms of the unintended consequences of requesting frequent earnings guidance. Further, while managers may perceive that accuracy goals can help their firms establish forecasting and reporting reputations, we show that accuracy goals may result in dysfunctional internal managerial decisions, particularly when guidance is issued infrequently.