This article examines the use of annual earnings guidance as a mechanism used by managers to reduce the volatility of analyst earnings forecasts and allow them to report smooth earnings without missing quarterly analyst forecasts. Facing the pressure to meet or beat analyst forecasts and driven by the perceived capital market benefits of reporting a smooth earnings path, managers attempting to influence investors’ earnings expectations over a longer horizon can issue annual guidance to smooth the time-series path of analyst forecasts, a strategy we term as “expectation smoothing.” Our empirical results suggest that annual guidance reduces the volatility of analysts’ multi-period forecasts, which in turn contributes to a smoother actual earnings and higher likelihood of meeting analysts’ quarterly forecasts. We also find that issuing quarterly guidance does not affect the smoothness of analysts’ earnings expectations and that managers with longer horizons are more likely to issue annual guidance, consistent with the unique long-term effects of annual earnings guidance.

Annual Earnings Guidance and the Smoothing of Analysts’ Multi-Period Forecasts / Luo, J.; Ronen, J.; Shalev, R.; Tang, M.. - In: JOURNAL OF ACCOUNTING AUDITING & FINANCE. - ISSN 0148-558X. - (In corso di stampa), pp. 1-28. [10.1177/0148558X20945574]

Annual Earnings Guidance and the Smoothing of Analysts’ Multi-Period Forecasts

Luo J.;
In corso di stampa

Abstract

This article examines the use of annual earnings guidance as a mechanism used by managers to reduce the volatility of analyst earnings forecasts and allow them to report smooth earnings without missing quarterly analyst forecasts. Facing the pressure to meet or beat analyst forecasts and driven by the perceived capital market benefits of reporting a smooth earnings path, managers attempting to influence investors’ earnings expectations over a longer horizon can issue annual guidance to smooth the time-series path of analyst forecasts, a strategy we term as “expectation smoothing.” Our empirical results suggest that annual guidance reduces the volatility of analysts’ multi-period forecasts, which in turn contributes to a smoother actual earnings and higher likelihood of meeting analysts’ quarterly forecasts. We also find that issuing quarterly guidance does not affect the smoothness of analysts’ earnings expectations and that managers with longer horizons are more likely to issue annual guidance, consistent with the unique long-term effects of annual earnings guidance.
analyst forecasts; annual earnings guidance; earnings smoothing; expectation smoothing
Annual Earnings Guidance and the Smoothing of Analysts’ Multi-Period Forecasts / Luo, J.; Ronen, J.; Shalev, R.; Tang, M.. - In: JOURNAL OF ACCOUNTING AUDITING & FINANCE. - ISSN 0148-558X. - (In corso di stampa), pp. 1-28. [10.1177/0148558X20945574]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/199335
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