The Causal Effects of Mandatory Quarterly Earnings Guidance on Corporate Information Environment and Corporate Short-Termism

Abstract

I examine the causal effects of mandatory quarterly earnings guidance using a regulatory mandate in China that required a subset of listed firms to issue bundled quarterly earnings guidance from 2007 to 2018. A difference-in-differences analysis shows that when these firms are no longer required to issue such guidance, their corporate information environment deteriorates, evidenced by reduced analyst coverage, fewer site visits, and lower price timeliness, meaning that stock prices incorporate less information about current and future earnings. However, these firms increase R&D and SG&A spending, consistent with alleviated managerial myopia as short-term market pressure eases. These findings highlight the dual-edged nature of the mandatory quarterly earnings guidance and offer insights for both practitioners and policymakers.