Investors' Reactions to Management Guidance Forms: The Influence of Multiple Benchmarks

Accounting Review, Forthcoming

Posted: 19 Oct 2006

See all articles by Jun Han

Jun Han

The University of Hong Kong

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Abstract

In this study, we investigate underlying mechanisms for the effects of management guidance forms on investors' judgments. We do so by comparing effects of point and range guidance with those associated with a hybrid management guidance form that combines the attributes of both point and range guidance. With respect to investors' earnings reestimates made after actual earnings announcements, we find that both the number and type of benchmarks associated with the guidance forms matter. High-knowledge investors use both primary (explicitly-stated) and secondary (implicitly-stated) benchmarks, whereas low-knowledge investors attend only to primary benchmarks. We also find that investors have greater confidence in their earnings estimates when management guidance explicitly provides best estimates.

Keywords: management guidance, guidance form, investor knowledge, multiple reference points

JEL Classification: M41, M45, G29

Suggested Citation

Han, Jun and Tan, Hun-Tong, Investors' Reactions to Management Guidance Forms: The Influence of Multiple Benchmarks. Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=938688

Jun Han (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China
852 22415846 (Phone)

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

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