Causes and Consequences of Disaggregating Earnings Guidance

29 Pages Posted: 27 Feb 2013

See all articles by Benjamin N Lansford

Benjamin N Lansford

affiliation not provided to SSRN

Baruch Lev

New York University - Stern School of Business

Jennifer Wu Tucker

affiliation not provided to SSRN

Date Written: January/February 2013

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 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.

Keywords: management earnings forecasts, earnings guidance, disaggregation, voluntary disclosure

Suggested Citation

Lansford, Benjamin N and Lev, Baruch Itamar and Wu Tucker, Jennifer, Causes and Consequences of Disaggregating Earnings Guidance (January/February 2013). Journal of Business Finance & Accounting, Vol. 40, Issue 1-2, pp. 26-54, 2013. Available at SSRN: https://ssrn.com/abstract=2225661 or http://dx.doi.org/10.1111/jbfa.12002

Benjamin N Lansford

affiliation not provided to SSRN

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

Jennifer Wu Tucker

affiliation not provided to SSRN

No Address Available

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