Manager-Specific Effects on Earnings Guidance: An Analysis of Top Executive Turnovers

Journal of Accounting Research, Vol. 49, No. 5, December 2011

51 Pages Posted: 12 Sep 2007 Last revised: 7 May 2013

Francois Brochet

Boston University - Department of Accounting

Lucile Faurel

Arizona State University

Sarah E. McVay

University of Washington

Date Written: June 2, 2011

Abstract

We investigate how managers contribute to the provision of earnings guidance by examining the association between top executive turnovers and guidance. Although firm and industry characteristics are important determinants of guidance, we conclude that CEOs participate in firm-level policy decisions, whereas CFOs are involved in the formation or discussion of guidance. Among firms that historically issued frequent guidance, breaks in guidance following CEO turnovers are relatively permanent and are potentially attributable to firm-initiated changes in guidance policy. Breaks following CFO turnovers, however, likely reflect uncertainty on the part of the newly appointed executive - they are concentrated in the two quarters following the turnover, are associated with the background of the newly appointed CFO, and extend to the relative precision of the guidance. Among firms that did not issue guidance historically, we find some evidence that newly appointed externally hired CEOs increase the likelihood of providing guidance.

Keywords: Earnings guidance, Management guidance, Managerial expertise, Managerial knowledge, Executive turnover, CEO turnover, CFO turnover

JEL Classification: M41

Suggested Citation

Brochet, Francois and Faurel, Lucile and McVay, Sarah E., Manager-Specific Effects on Earnings Guidance: An Analysis of Top Executive Turnovers (June 2, 2011). Journal of Accounting Research, Vol. 49, No. 5, December 2011. Available at SSRN: https://ssrn.com/abstract=1014065

Francois Brochet (Contact Author)

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Lucile Faurel

Arizona State University ( email )

W.P. Carey School of Business
School of Accountancy, B267H
Tempe, AZ 85287
United States
(480) 965-6216 (Phone)

Sarah E. McVay

University of Washington ( email )

Box 353200
Seattle, WA 98195-3200
United States

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