How Salience of Management Guidance Affects Forecasting Behavior: Evidence from a Quasi-Natural Experiment on Estimize

Abstract

In October 2014, Estimize.com began providing management guidance on its platform for firms that provide guidance. We exploit this exogenous shock to salience of management guidance as a quasi-natural experiment to study how salience of management guidance affects forecasting behavior. Using a difference-in-differences design, we show that an increase in salience increases the number of Estimize contributors, increases contributors’ forecast accuracy, lowers contributors’ forecast dispersion, and increases herding by contributors towards the guidance forecast. Our results imply that, absent endogeneity, the increased salience of management guidance increases attention to the guidance information by market participants with attentional constraints, thereby increasing the likelihood that they incorporate guidance information when forming expectations about a firm’s future performance.

Keywords: Salience, Limited attention, Field experiment, Estimize, Management guidance

JEL Classification: M41, G11, G17, F14, G38, G41, C93, G28, G29