The authors thank Bruce Billings, Nerissa Brown, Shuping Chen, Steven Crawford, Joel Demski, Vicki Dickinson, John Hassell, Michael Kimbrough, Lisa Koonce, Zining Li, Rick Morton, K. Ramesh, Lynn Rees, Doug Skinner, Shankar Venkataraman, Martin Walker (the Editor), Beverly Walther, and an anonymous referee. The authors also thank workshop participants at the University of Illinois at Chicago, University of Houston, and Florida State University and participants at the 2007 Conference of Financial Economics and Accounting (FEA), 2008 AAA Mid-Year FARS Conference, and 2008 AAA Annual Conference. We thank Jimmy Lee, Jerry Liu, Richard Lu, and Jie Zhou for research assistance. Jenny Tucker thanks the J. Michael Cook/Deloitte Professorship Foundation for financial support.
Causes and Consequences of Disaggregating Earnings Guidance
Article first published online: 25 FEB 2013
© 2013 Blackwell Publishing Ltd
Journal of Business Finance & Accounting
Volume 40, Issue 1-2, pages 26–54, January/February 2013
How to Cite
Lansford, B., Lev, B. and Wu Tucker, J. (2013), Causes and Consequences of Disaggregating Earnings Guidance. Journal of Business Finance & Accounting, 40: 26–54. doi: 10.1111/jbfa.12002
- Issue published online: 25 FEB 2013
- Article first published online: 25 FEB 2013
- Manuscript Accepted: OCT 2012
- Manuscript Received: AUG 2011
- management earnings forecasts;
- earnings guidance;
- voluntary disclosure
Whether managers should provide earnings guidance, especially quarterly guidance, has been a hotly debated policy issue. Influential organizations have urged firms to stop providing earnings guidance to reduce earnings fixation and short-termism in the capital markets. Little attention has been paid to an alternative proposal: instead of ceasing earnings guidance, companies could provide disaggregated earnings guidance. No archival evidence exists regarding the determinants of disaggregated earnings guidance and its effects on the firm and its information environment. We find that once managers provide guidance, the decision to disaggregate this guidance is primarily driven by demand-and-supply factors that exhibit little change from year to year rather than by strategic factors. We find more timely analyst forecast revisions (with no compromise of forecast accuracy), a greater magnitude of revisions, and a larger reduction in analyst disagreement for disaggregating firms than for non-disaggregating firms. These findings suggest that disaggregation enriches a firm's information environment. We also find that disaggregation helps managers align analyst expectations with their own, but firms are punished by investors for providing multiple performance targets but missing them.