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An International Meeting of American Accounting
Association
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To Guide or Not to Guide? Causes and Consequences of Stopping and Subsequently Resuming Earnings Guidance |
Joel F. Houston
University of Florida
Baruch Lev
New York University
Jennifer W. Tucker
University of Florida
Abstract: This study examines a sample of firms that have dramatically changed their quarterly earning guidance: after routinely issuing guidance, they ceased to do so for at least four quarters. Some announced the stopping decision publicly, while others did not. We also include in our study the firms that resumed guidance subsequent to the “quiet period.” We find that the most consistent reason for stopping and subsequently resuming guidance is a firm’s record of meeting/beating analyst forecasts: Firms that stop providing guidance have a poor record before they eliminate guidance, and when this record improves, guidance tends to be resumed. Moreover, we document that firms that stop providing guidance experience a significant decrease in analyst following after ceasing guidance. Contrary to frequent arguments, we find no evidence that guidance stoppers increase long-term investments or provide enhanced disclosures in lieu of the discontinued earnings guidance.