TY - JOUR
T1 - Does the Form of Management Earnings Guidance Affect Analysts' Earnings Forecasts (Retracted)
AU - Libby, R.
AU - Tan, H.
AU - Hunton, J.
PY - 2006/1/1
Y1 - 2006/1/1
N2 - This study examines how the form of management's earnings guidance (point, narrow range, wide range) affects analysts' earnings forecasts. Results from two experiments demonstrate that: (1) guidance form has no effect on analysts' forecasts made immediately after the guidance; and (2) after the actual earnings announcement, guidance form and the relationship of the earnings guidance to actual earnings (guidance error) interact in their effect on analysts' forecasts. After the actual earnings announcement, guidance error leads to higher (lower) analysts' forecasts for firms with downwardly (upwardly) biased guidance; this effect of guidance error is magnified by a narrow range and reduced by a wide range, compared to a point estimate. These results suggest that treating the mean of the range endpoints as equivalent to a point estimate and failing to consider effects after the release of actual earnings may paint an incomplete picture of how management guidance affects analysts and investors. It also offers useful information to managers who issue earnings guidance, and presents a challenge to the psychology literature regarding the effects of information precision on judgment and decision making.
AB - This study examines how the form of management's earnings guidance (point, narrow range, wide range) affects analysts' earnings forecasts. Results from two experiments demonstrate that: (1) guidance form has no effect on analysts' forecasts made immediately after the guidance; and (2) after the actual earnings announcement, guidance form and the relationship of the earnings guidance to actual earnings (guidance error) interact in their effect on analysts' forecasts. After the actual earnings announcement, guidance error leads to higher (lower) analysts' forecasts for firms with downwardly (upwardly) biased guidance; this effect of guidance error is magnified by a narrow range and reduced by a wide range, compared to a point estimate. These results suggest that treating the mean of the range endpoints as equivalent to a point estimate and failing to consider effects after the release of actual earnings may paint an incomplete picture of how management guidance affects analysts and investors. It also offers useful information to managers who issue earnings guidance, and presents a challenge to the psychology literature regarding the effects of information precision on judgment and decision making.
UR - https://doi.org/10.2308/accr-10436
U2 - 10.2308/accr.2006.81.1.207
DO - 10.2308/accr.2006.81.1.207
M3 - Erratum / corrigendum / retractions
SN - 0001-4826
VL - 81
SP - 207
EP - 226
JO - Accounting Review
JF - Accounting Review
ER -