The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions

Journal of Accounting Research, Forthcoming

41 Pages Posted: 23 Jun 2013

See all articles by Elaine Wang

Elaine Wang

University of Massachusetts Amherst

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Date Written: June 21, 2013

Abstract

We conduct an experiment to examine the effects of guidance frequency (frequent versus infrequent) and guidance goal (accuracy versus meet/beat versus truthful) on managers’ operating decisions. We find that frequent guiders sacrifice total earnings for quarterly earnings predictability irrespective of their guidance goals. Furthermore, when guidance is infrequent, guiders with accuracy goals opt for quarterly earnings predictability over total earnings more often than do guiders with either meet/beat goals or truthful goals. These findings have implications for regulators and investors in terms of the unintended consequences of requesting frequent earnings guidance. Further, while managers may perceive that accuracy goals can help their firms establish forecasting and reporting reputations, we show that accuracy goals may result in dysfunctional internal managerial decisions, particularly when guidance is issued infrequently.

Keywords: Guidance Frequency, Guidance Goal, Earnings Predictability

Suggested Citation

Wang, Elaine (Ying) and Tan, Hun-Tong, The Effects of Guidance Frequency and Guidance Goal on Managerial Decisions (June 21, 2013). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2283477

Elaine (Ying) Wang (Contact Author)

University of Massachusetts Amherst ( email )

Amherst, MA 01003-4910
United States
413-545-7613 (Phone)

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

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