Subjective Beliefs and Management Earnings Guidance Bias: Evidence from CEOs’ Political Affiliations

51 Pages Posted: 18 Nov 2021 Last revised: 4 Mar 2022

See all articles by Xuejiao Liu

Xuejiao Liu

University of International Business and Economics

Ke Na

Cheung Kong Graduate School of Business

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Wenjia Yan

The University of Hong Kong

Date Written: August 15, 2021

Abstract

This study finds that CEOs’ annual earnings guidance is more negatively biased in periods when the White House is governed by the political party the CEOs did not contribute to, relative to periods when the White House is occupied by their party. The results hold as strongly for the last guidance of the year, suggesting that CEOs do not revise their priors over the year. Upon facing an opposing presidency, the sensitivity of CEOs’ capital investments to cash flow decreases, relative to their politically aligned years. The results are largely driven by Republican CEOs, consistent with prior findings of asymmetry in the political partisanship in the US. The results do not appear to be driven by CEOs facing more information uncertainty when they are politically opposed, or by CEOs’ strategic motives to help their party.

Keywords: Subjective Belief, Partisan Conflict, Earnings Guidance, Firm-CEO Matching

JEL Classification: G30, M41

Suggested Citation

Liu, Xuejiao and Na, Ke and Nagar, Venky and Yan, Wenjia, Subjective Beliefs and Management Earnings Guidance Bias: Evidence from CEOs’ Political Affiliations (August 15, 2021). Available at SSRN: https://ssrn.com/abstract=3950975 or http://dx.doi.org/10.2139/ssrn.3950975

Xuejiao Liu

University of International Business and Economics ( email )

Beijing, Beijing
China

Ke Na (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Wenjia Yan

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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