Do Managers Issue Guidance to Correct Analysts ’ Predictable Errors?

This study investigates managers ’ propensity to issue guidance in attempt to adjust analysts’ earnings expectations. Building on the literature that associates management guidance with ex post analysts ’ forecast errors, I find that the issuance of management forecasts is increasing in both the forecast errors that can be predicted by and those that are unexpected by the market while the direction of management guidance is more strongly associated with unexpected analysts ’ errors. I predict and find that the market efficiently filters the predictable errors in analysts ’ forecasts when reacting to management forecasts. Results are robust to the method used to predict analysts ’ forecast errors, the time period measured, and controls for selection bias, and across both quarterly and annual guidance events