Events

Verrecchia (2001) distinguishes efficiency-based disclosure, in which firms make an ex ante commitment to disclose information before its content is observed, from discretionary-based disclosure, in which firms choose to disclose information after its content is observed. In this paper, we compare firms that issue guidance every quarter over twelve consecutive quarters (consistent with efficiency-based disclosure) to firms that issue guidance sporadically (consistent with discretionary-based disclosure) to examine whether disclosure strategies lead to systematic differences in guidance quality and credibility. We find that guidance issued by firms that issue guidance every quarter tends to be more accurate, have less variable forecast errors, and be viewed more credibly by market participants. In addition, we find that firms that issue guidance sporadically tend to issue guidance when there is less uncertainty and analysts are more optimistic. This suggests that firms following a discretionary-based guidance strategy balance the benefits of lowering earnings expectations against the costs of large forecast errors when deciding whether to issue guidance in a particular quarter. Together, we document systematic differences in the quality of guidance between firms that appear to follow an efficiency-based disclosure strategy and firms that appear to follow a discretionary-based strategy.