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

47 Pages Posted: 21 Jul 2019 Last revised: 9 Jun 2020

See all articles by Qin Li

Qin Li

Hong Kong Polytechnic University

Ben Lourie

University of California, Irvine

Siew Hong Teoh

University of California, Irvine - Accounting Area

Date Written: May 21, 2020

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

Suggested Citation

Li, Qin and Lourie, Ben and Teoh, Siew Hong, How Salience of Management Guidance Affects Forecasting Behavior: Evidence from a Quasi-Natural Experiment on Estimize (May 21, 2020). Available at SSRN: https://ssrn.com/abstract=3423608 or http://dx.doi.org/10.2139/ssrn.3423608

Qin Li

Hong Kong Polytechnic University ( email )

Hung Hom
Hong Kong
Hong Kong

Ben Lourie (Contact Author)

University of California, Irvine ( email )

Irvine, CA 92697-3125
United States

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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