Earnings Guidance and Managerial Myopia

46 Pages Posted: 25 Nov 2005

See all articles by Mei Cheng

Mei Cheng

University of Arizona - Department of Accounting

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting

Yuan Zhang

University of Texas at Dallas

Date Written: November 2005

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

Suggested Citation

Cheng, Mei and Subramanyam, K.R. and Zhang, Yuan, Earnings Guidance and Managerial Myopia (November 2005). Available at SSRN: https://ssrn.com/abstract=851545 or http://dx.doi.org/10.2139/ssrn.851545

Mei Cheng

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5017 (Phone)
213-747-2815 (Fax)

Yuan Zhang (Contact Author)

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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