Article at a glance:

The misguided practice of earnings guidance

• Many executives believe that providing quarterly earnings guidance helps them to maintain an open channel of communication with investors in their companies and to increase the visibility of those companies while reducing the volatility of share prices and improving share valuations.
• Our analysis finds that the practice offers few of the expected benefits and carries its own costs, particularly management time and an overemphasis on short-term performance.
• Executives should consider whether providing quarterly earnings guidance is truly necessary—or whether other types of information would better serve the goals of companies and their shareholders.