Bundled Earnings Guidance and Analysts’ Forecast Revisions

Posted: 7 May 2021

See all articles by Charles Hsu

Charles Hsu

Hong Kong University of Science & Technology

Rencheng Wang

Singapore Management University - School of Accountancy

Date Written: May 3, 2021

Abstract

Bundling managerial earnings guidance with quarterly earnings announcements (EAs) has become an increasingly common practice. This study investigates the impact of bundled guidance on analysts’ forecast revisions. Our findings indicate that analysts respond more to bundled guidance than non-bundled guidance. This effect increases with analysts’ time pressure and cognitive constraints around the EA. Analysts’ revisions also incorporate more of the bundled management guidance when accompanied by additional information, such as conference calls. We further find that analysts revise their forecasts more quickly following bundled guidance than non-bundled guidance. Together, these findings are consistent with the notion that analysts place more weight on bundled guidance than non-bundled guidance in their forecast revisions as bundled guidance facilities analysts’ timely forecast revisions following EAs. Finally, we find that analysts’ forecast revisions following bundled guidance generate significant market reactions. Our findings enhance our understanding of analysts’ information processing and shed light on why bundling can be an effective guidance strategy.

Keywords: bundled guidance, management forecast, analyst forecast, earnings announcement, timely forecast, information processing

Suggested Citation

Hsu, Charles and Wang, Rencheng, Bundled Earnings Guidance and Analysts’ Forecast Revisions (May 3, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3840039

Charles Hsu (Contact Author)

Hong Kong University of Science & Technology ( email )

Hong Kong
Hong Kong
852-2358-7568 (Phone)
852-2358-1693 (Fax)

Rencheng Wang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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