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

Mei Cheng
University of Southern California

K. R. Subramanyam
University of Southern California

Yuan Zhang
Columbia University

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.

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