Document Type
Article
Publication Date
7-1-2014
Abstract
In the wake of Enron-era scandals, some practitioners argue that earnings guidance ("management expects the firm to earn between $0.95 and $1.05 per share") invites dysfunctional behaviors as executives scramble to achieve previously announced targets. Guidance advocates counter that earnings forecasts simply reduce investor uncertainty. Quantitative analyses have not settled the matter. This qualitative study uses interviews of financial executives at 31 U.S. companies to explore how guidance influences managerial experiences. Primary findings are that executives fear credibility loss from reporting financial results that vary from guided estimates and that anxiety increases as guidance horizons stretch into the future and down the income statement. To address these concerns, executives modify their definitions of earnings to exclude components that are difficult to predict.
Keywords
executives, earnings management, Weatherhead School of Management, earnings, guidance, grounded theory
Rights
© The Author(s). This is an open access work distributed under the terms of the Creative Commons Attribution-Non-Commercial (https://creativecommons.org/licenses/by-nc/4.0/) which permits non-commercial reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Recommended Citation
King, Thomas A., "Is Earnings Guidance a Treacherous Servant?" (2014). Student Scholarship. 269.
https://commons.case.edu/studentworks/269