Expectations Management and Beatable Targets: How Do Analysts React to Explicit Earnings Guidance?

43 Pages Posted: 17 May 2006

See all articles by Julie Cotter

Julie Cotter

University of Southern Queensland

A. Irem Tuna

London Business School

Peter D. Wysocki

Boston University Questrom School of Business

Abstract

This study investigates security analysts' reactions to public management guidance and assesses whether managers successfully guide analysts toward beatable earnings targets. We use a panel dataset between 1995 and 2001 to examine the fiscal-quarter-specific determinants of management guidance and the timing, extent, and outcomes of analysts' reactions to this guidance. We find that management guidance is more likely when analysts' initial forecasts are optimistic, and, after controlling for the level of this optimism, when analysts' forecast dispersion is low. Analysts quickly react to management guidance and they are more likely to issue final meetable or beatable earnings targets when management provides public guidance. Our evidence suggests that public management guidance plays an important role in leading analysts toward achievable earnings targets.

Keywords: Analysts, Earnings guidance, Expectations management, Management earnings forecasts

JEL Classification: M41, G14, D82, D84

Suggested Citation

Cotter, Julie and Tuna, Ayse Irem and Wysocki, Peter D., Expectations Management and Beatable Targets: How Do Analysts React to Explicit Earnings Guidance?. Contemporary Accounting Research, Vol. 23, No. 3, Autumn 2006, Available at SSRN: https://ssrn.com/abstract=902486

Julie Cotter (Contact Author)

University of Southern Queensland ( email )

Australian Centre for Sustainable Business and Dev
Toowoomba, 4350
Australia
+61 7 4631 2916 (Phone)
+61 7 4631 1770 (Fax)

HOME PAGE: http://www.usq.edu.au/users/cotter/

Ayse Irem Tuna

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Peter D. Wysocki

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
783
Abstract Views
3,705
Rank
58,861
PlumX Metrics