When Do Firms Initiate Earnings Guidance? The Timing, Consequences, and Characteristics of Firmss First Earnings Guidance

Abstract

The decision to provide earnings guidance for the first time is an important disclosure decision that has a significant effect on subsequent earnings guidance decisions. We explore how soon managers initiate earnings guidance after an initial public offering (IPO) and the factors associated with the adoption of this new disclosure policy. Our results suggest that managers in the current environment often initiate public guidance soon after their IPOs. Specifically, we find that more than 31 (59) percent of our sample firms provide earnings guidance within 90 (365) days of going public. We explore factors that are likely related to the supply of and demand for early earnings guidance. We find evidence of a positive association between the timing of earnings guidance initiation and the involvement of influential external parties (analysts, venture capital firms, and private equity firms) and the proportion of industry peers that guide and a negative association between the timing of first guidance and IPO information uncertainty. In addition, we find a positive association between abnormal returns and first guidance forecast news, consistent with investors generally relying on first-time guidance. We also find that firms in short-term focused industries tend to provide shorter-horizon initial guidance. Overall, the results indicate that, while the timing of first guidance varies with firm-specific measures of the costs and benefits of disclosure predicted by theory, the horizon of first guidance depends mostly on industry factors.