Investor Reactions to Management Earnings Guidance Attributions: The Effects of News Valence, Attribution Locus, and Outcome Controllability

44 Pages Posted: 28 Oct 2016

See all articles by Wei Chen

Wei Chen

UNSW Australia Business School, School of Accounting

Jun Han

The University of Hong Kong

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Date Written: July 27, 2016

Abstract

We conduct two experiments to investigate how investors react to attributions accompanying management guidance. In our first experiment, we investigate the joint effect of attribution locus (external versus internal attribution) and guidance-news valence (positive versus negative guidance news) on investors’ earnings judgments. We find that investors provide lower earnings estimates when management attributes negative guidance news to external factors than internal factors. When the guidance news is positive, the locus (internal versus external) of the attributions has no effect on investors’ earnings estimates. In our second experiment, we separate out the effect of the attribution’s outcome controllability (controllable versus uncontrollable) from that of attribution locus in a negative guidance news setting. We find that investors provide higher earnings estimates for internal/outcome controllable attributions than for internal/outcome uncontrollable attributions. Outcome controllability does not matter when attributions are external. Our study extends prior research by showing how the valence of management guidance and the characteristics of guidance attributions jointly influence investors’ earnings judgments.

Keywords: Management Earnings Guidance, Attribution, Attribution Locus, Outcome Controllability

JEL Classification: C91, M41

Suggested Citation

Chen, Wei and Han, Jun and Tan, Hun-Tong, Investor Reactions to Management Earnings Guidance Attributions: The Effects of News Valence, Attribution Locus, and Outcome Controllability (July 27, 2016). Available at SSRN: https://ssrn.com/abstract=2860415 or http://dx.doi.org/10.2139/ssrn.2860415

Wei Chen

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

Jun Han

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China
852 22415846 (Phone)

Hun-Tong Tan (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

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

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