Analysts’ Influence on Managers’ Guidance

Question 1

Ways analysts to communicate their demands for disclosure:

Answer 1

1) analysts may request guidance that managers do not already provide
2) analysts may ask (or not ask) questions about guidance the managers have provided

Additional:
- express information requests to managers privately

Question 2

Six of the most common types of guidance

Answer 2

Capital expenditures (CAPEX); cash flows; earnings before interest, taxes, depreciation and amortization (EBITDA); earnings per share (EPS); operating margin; and tax rates (tax).

Question 3

Main findings (with %):

Answer 3

1) When analysts ask for a type of guidance that managers have not previously provided, managers are approximately 3 percent more likely to provide this type of guidance in future quarters.
2) When analysts do not ask about a type of guidance that managers previously provided, managers are approximately 4 percent less likely to provide that guidance in future quarters.

Question 4

Economically meaningful findngs:

Answer 4

1) marginal effects are large, given that the unconditional probability of providing a forecast is 20 percent
2) analysts’ influence on guidance is long-lasting, although its marginal effect declines over time
3) analysts’ requests (disinterest) also lead to guidance being more (less) likely in earnings announcements, consistent with the view that managers learn from analysts’ feedback

Question 5

Company specific findings:

Answer 5

1) both analysts’ requests and managers’ guidance are less likely for firms with information problems (small companies, companies with low or volatile earnings, and companies in industries in which guidance is infrequent)
2) analysts’ feedback is more informative to managers of companies with bad news

Question 6

Managers’ guidance is incremental to …

Answer 6

institutional investor holdings, industry-level disclosure patterns, firm characteristics, analysts’ prior requests for guidance, managers’ prior guidance, and analysts’ questions on the same topic that do not request guidance

Question 7

Why analysts’ influence on a firm’s information environment is likely to extend to managers’ guidance?

Answer 7

1) managers and analysts have different information specialties, managers can learn from analysts about the optimal types and levels of voluntary disclosure
2) managers have incentives to adopt optimal voluntary disclosure policies because of the potential benefits: decreased costs of capital, increased stock liquidity, new or informed investors, reduced litigation costs