An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Jun Han
The University of Hong Kong

Hun - Tong Tan
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.

Back to Session Listing

AAA Home Page