Guidance Frequency and Guidance Properties: The Effect of Reputation-Building and Learning-by-Doing

• Main Authors: BHOJRAJ, Sanjeev, LIBBY, Robert, YANG, Holly I.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: management forecasts; earnings guidance; guidance frequency; learning; Accounting; Business Law, Public Responsibility, and Ethics
• Online Access: https://ink.library.smu.edu.sg/soa_research/1164; https://ink.library.smu.edu.sg/context/soa_research/article/2163/viewcontent/GuidanceFrequencyProperties_Reputation_2012_wp.pdf
• Institution: Singapore Management University

Different firms issue earnings guidance at dramatically different rates. We suggest that frequent guiders more likely represent a type of firm that is attempting to develop a reputation for enhanced disclosures through their guidance issuances. Furthermore, the desire to build a reputation and the opportunities to learn provided by issuing more frequent guidance should translate into frequent guiders providing higher quality guidance than occasional guiders. We examine our hypotheses in three stages. First, we find that guidance frequency is positively correlated with variables associated with reputation with capital market participants and reputation in product and labor markets. Second, our cross-sectional analysis shows that frequent guiders provide guidance that is more accurate and specific, timelier, and less optimistically biased. Third, controlling for overall time trends, we find that firms display improvements over time in their guidance properties. Overall, our results are consistent with the reputation-building and learning-by-doing arguments.