Earnings Guidance and Managerial Myopia

Abstract

We examine whether firms that frequently issue quarterly earnings guidance behave myopically, where myopic behavior is defined as sacrificing long-term growth for the purpose of meeting short-term goals (Porter [1992]). We find that dedicated guiders invest significantly less in research and development (R&D) than occasional guiders. We also find that, in comparison to occasional guiders, dedicated guiders meet or beat analyst consensus more frequently. However, we find that dedicated guiders' long-term earnings growth rates are significantly lower than those of occasional guiders. Overall, our results are consistent with dedicated guiders engaging in myopic R&D investment behavior and meeting short-term earnings targets with possible adverse effects for long-term earnings growth.

Keywords: Earnings guidance, managerial myopia

JEL Classification: G31, M41, M43, G29