Book Description

This dissertation proposes and examines three research questions on quarterly earnings guidance on its discontinuity and revival. In particular, it examines the impact of corporate governance on a firm's decision to stop quarterly earnings guidance, the impact of its discontinuity on a firm's investment decisions, and why a firm restarts providing quarterly earnings guidance. Corporate governance is measured by board independence, institutional ownership, types of institutional ownership and CEOs compensation. A firm's long term investments are measured by capital and Research and Development (R & D) expenditure. Theories of firm performance and earnings expectation management are used to explain a firm's decision to restart. Using an industry-year-quarter matched sample of 1610 firms (the STOPPERS and the MAINTAINERS) from 2001 to 2006, this study finds that a firm is more likely to stop quarterly earnings guidance when its board is more independent, institution ownership is lower, the dedicate institution ownership is higher and the level of cash proportion of CEOs compensation is higher. It also finds a firm is more likely to stop when both past and expected future earnings performances are poorer or more difficult to predict or the management is more optimistic or litigation risk is lower. Second, this study finds that the STOPPERS have higher levels of capital expenditure and R & D expenditure in the subsequence years following the stop event (one and two years). The change levels of the STOPPERS are higher than that of the MAINTAINERS. It implies that the quarterly earnings guidance has adverse impact on firm's long term investments. Third, using an industry-year-quarter matched sample of 342 firms (the RESUMERS and the NONRESUMERS) from 2004 to 2008, it finds that a firm is more likely to restart when its earnings and market return improve, or when the prevailing market expectations are higher to beat/meet. In addition, it finds that the R & D expenditure of the RESUMERS are higher than that of the NONRESUMERS in the three years before the restart event, which implies that the RESUMERS increase R & D and capital expenditure after the stoppage, and improve the firm performance.