Do management EPS forecasts allow returns to reﬂect
future earnings? Implications for the continuation
of management’s quarterly earnings guidance
Linda A. Myers
David A. Ziebart
Published online: 28 April 2010
Ó Springer Science+Business Media, LLC 2010
Abstract Using 18,253 ﬁrm-year observations from 1998 through 2003, we build
on literature suggesting that more informative disclosures allow returns to better
reﬂect future earnings and test whether management earnings per share forecasts
and their characteristics inﬂuence the future earnings response coefﬁcient (FERC).
We ﬁnd that FERCs are greater for forecasting ﬁrms and when forecasts are more
frequent or precise. We suggest that more frequent and more precise forecasts assist
investors in better predicting future earnings. Importantly, we ﬁnd that quarterly and
short-term forecasts incrementally increase the association between returns and
future earnings beyond annual and long-term forecasts; thus, even short-term,
quarterly forecasts allow investors to form better expectations about future earnings.
This suggests a beneﬁt of quarterly earnings forecasts possibly overlooked in rec-
ommendations from the United States Chamber of Commerce, CFA Institute,
Business Roundtable Institute for Corporate Ethics, and The Conference Board to
eliminate quarterly earnings guidance.
Data availability: All data are available from public sources identiﬁed in the paper.
College of Business Administration, Seoul National University, 599 Gwanangno, Gwanak-gu,
Seoul 151-916, Korea
L. A. Myers (&)
Sam M. Walton College of Business, University of Arkansas, Fayetteville, AR 72703, USA
School of Accountancy, Singapore Management University, 60 Stamford Road, Singapore 178900,
D. A. Ziebart
Von Allmen School of Accountancy, University of Kentucky, 355 O Gatton Business & Economics
Bldg, Lexington, KY 40506-0034, USA
Rev Account Stud (2011) 16:143–182