Question

After reading the Graham, Campbell, and Rajgopal article, you might get the implication for the motivation of voluntary disclosure. Why does the article suggest that managers’ earnings guidance can destroy the firm’ value?

Because the preparation of the guidance is costly

The earnings guidance can increase agency cost by discouraging managers from focusing on long-term value increase

The guidance is generally not accurate, and make confusions in the market

None of the above

Answer 1

The answer to above is none of above as manager's earning guidance can destroy the firma value because of its impact on the share market capital of the company.

Managers earning guidance means estimated future earnings expectations, how company is going to perform,opportunities and threats are identified. It generally gives the expected revenue and profit of the firm which is related to coming year or years.

This guidance is voluntarily disclosed by many organisations and are very much in line with the actual figures.

This guidance will impact its share prices in secondary securuties market as investors react to this guidance for the decisions of inveatment or holding an investment. Any unexpected or poor guidance leads to crash in prices of the firm's share and because of this it can destroy the firm's value.

Its not that its very costly affair because of which it destroy's value of firm or neither it leads to change in motivation among managers to achieve the long term goals.