Public companies are not required by any law, rule or regulation of the Securities and Exchange Commission (SEC) or any stock exchange to issue earnings guidance. However, investors and analysts often expect to receive earnings guidance, especially for companies in certain industries. Should a company give earnings guidance? If so, how often should it do so? When, if ever, should it update previously issued guidance outside of its normal financial reporting schedule? What kind of guidance should companies give? These questions raise difficult issues for public companies, and the current challenging economic environment has made these issues even more difficult to address.
The Decision Whether to Give Guidance, How Often and How Much -
The Pros and Cons -
Supporters of issuing earnings guidance believe that it benefits investors and companies. Proponents argue that earnings guidance provides securities analysts with a reliable data point to assist them in evaluating their own projections regarding a company’s results. Providing such information also may reduce investor uncertainty by providing investors with better information to evaluate a company and may help prevent volatility in securities prices. Companies that issue earnings guidance hope that by doing so they will benefit from higher valuations, lower share price volatility and improved liquidity for their securities. Companies also hope that these benefits will result in fewer shareholder lawsuits.
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