Causes and Consequences of Disaggregating Earnings Guidance

Journal of Business, Finance and Accounting, 2013, Vol. 40 (1)&(2): 26-54

49 Pages Posted: 13 Sep 2007 Last revised: 24 Mar 2019

See all articles by Benjamin Lansford

Benjamin Lansford

Pennsylvania State University

Baruch Lev

New York University - Stern School of Business

Jenny Wu Tucker

University of Florida - Warrington College of Business Administration

Date Written: October 24, 2012

Abstract

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 opportunistic 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.

Keywords: management earnings forecast, earnings guidance, disaggregated earnings, voluntary disclosure

JEL Classification: M41, M45, G32, G29

Suggested Citation

Lansford, Benjamin and Lev, Baruch Itamar and Tucker, Jenny Wu, Causes and Consequences of Disaggregating Earnings Guidance (October 24, 2012). Journal of Business, Finance and Accounting, 2013, Vol. 40 (1)&(2): 26-54 . Available at SSRN: https://ssrn.com/abstract=1014240 or http://dx.doi.org/10.2139/ssrn.1014240

Benjamin Lansford

Pennsylvania State University ( email )

325 Business Building
University Park, PA 16802
United States
8148673556 (Phone)

Baruch Itamar Lev

New York University - Stern School of Business ( email )

40 West 4th Street, Suite 400
New York, NY 10012
United States
212-998-0028 (Phone)
212-995-4001 (Fax)

HOME PAGE: http://www.baruch-lev.com

Jenny Wu Tucker (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

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