Guidance Frequency and Guidance Properties: The Effect of Reputation-Building and Learning-by-Doing

51 Pages Posted: 1 Feb 2010 Last revised: 11 Jun 2014

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management

Robert Libby

Cornell University - Samuel Curtis Johnson Graduate School of Management

Holly Yang

Singapore Management University - School of Accountancy

Date Written: March 31, 2011

Abstract

Different firms issue earnings guidance at dramatically different rates. We suggest that frequent guiders more likely represent a type of firm that is attempting to develop a reputation for enhanced disclosures through their guidance issuances. Furthermore, the desire to build a reputation and the opportunities to learn provided by issuing more frequent guidance should translate into frequent guiders providing higher quality guidance than occasional guiders. We examine our hypotheses in three stages. First, we find that guidance frequency is positively correlated with variables associated with reputation with capital market participants and reputation in product and labor markets. Second, our cross-sectional analysis shows that frequent guiders provide guidance that is more accurate and specific, timelier, and less optimistically biased. Third, controlling for overall time trends, we find that firms display improvements over time in their guidance properties. Overall, our results are consistent with the reputation-building and learning-by-doing arguments.

Keywords: management forecasts, earnings guidance, guidance frequency, learning

Suggested Citation

Bhojraj, Sanjeev and Libby, Robert and Yang, Holly, Guidance Frequency and Guidance Properties: The Effect of Reputation-Building and Learning-by-Doing (March 31, 2011). Johnson School Research Paper Series No. 12-2010. Available at SSRN: https://ssrn.com/abstract=1545864 or http://dx.doi.org/10.2139/ssrn.1545864

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Accounting
Ithaca, NY 14853
United States
607-255-4069 (Phone)
607-254-4590 (Fax)

Robert Libby

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3348 (Phone)
607-254-4590 (Fax)

Holly Yang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://sites.google.com/site/holly0417phd/

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