The Genesis of Voluntary Disclosure: An Analysis of Firms’ First Earnings Guidance

52 Pages Posted: 23 Dec 2014 Last revised: 10 Sep 2019

See all articles by Kristian D. Allee

Kristian D. Allee

University of Arkansas - Department of Accounting

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

Bryan S. Graden

Southern Utah University

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting

Date Written: August 27, 2019

Abstract

We investigate a firm’s decision to initiate earnings guidance during its first year as a public company following its initial public offering (IPO), which we label “early guidance.” Using a sample of firms with IPOs between 2001 and 2010, we find that almost 60% of our IPO firms provide early guidance and that only one third of the firms that do not provide guidance during the first year subsequently decide to guide. Consistent with the importance of liquidity incentives following the IPO, we find that firms are significantly more likely to provide early guidance when their IPOs are backed by venture capital or private equity investors. Our results indicate that firms with higher IPO information quality are more likely to provide early earnings guidance. We also find that early guidance has significant implications for future disclosure choices. Firms that guide soon after the IPO are significantly more likely to guide again and to provide regular future guidance (i.e., they establish a regular guidance policy). Finally, we find evidence suggesting that the credibility of initial guidance is lower than that of subsequent guidance, and subsequent guidance credibility relates to both the length of firms’ guidance history and the accuracy of their initial guidance disclosures.

Keywords: earnings guidance, management earnings forecasts, initial public offerings

JEL Classification: M41

Suggested Citation

Allee, Kristian D. and Christensen, Theodore E. and Graden, Bryan S. and Merkley, Kenneth J., The Genesis of Voluntary Disclosure: An Analysis of Firms’ First Earnings Guidance (August 27, 2019). Available at SSRN: https://ssrn.com/abstract=2542018 or http://dx.doi.org/10.2139/ssrn.2542018

Kristian D. Allee (Contact Author)

University of Arkansas - Department of Accounting ( email )

University of Arkansas
Business Building 458
Fayetteville, AR 72701
United States
479-575-5227 (Phone)

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

Bryan S. Graden

Southern Utah University ( email )

351 West Center Street
Cedar City, UT 84720
United States

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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