Are Managers Really Myopic? The Evidence on Payout Policy, Guidance, and ‘Meet-or-Beat’ Since 2000

Abstract

We provide evidence on the payout policies and guidance practices of U.S. non-financial firms since 2000. We argue that managers adopt systematic capital management policies that link payouts to guidance and help credibly convey their expectations about their firms’ prospects. We also examine the extent to which these policies reflect “myopic” practices, such as the use of share repurchases and quarterly EPS guidance to just meet-or-beat EPS targets (JMOB). To address these questions, we examine how firms’ payout policies and guidance practices evolved over time and were affected by the GFC and COVID-19 shocks. We find a robust cross-sectional relation between firms’ payout policies and guidance practices (including after we condition on firm characteristics) and that COVID-19 and the GFC led to changes in payout policies that were systematically associated with contemporaneous changes in guidance. Over time, there is a shift towards longer-horizon guidance and the bundling of guidance while the extent to which firms JMOB declines, consistent with a movement away from myopic practices.

Keywords: Payouts, dividends, repurchases, buybacks, guidance, myopia