Managerial Myopia, Earnings Guidance, and Investment*

Cyrus Aghamolla, Tadashi Hashimoto

Research output: Contribution to journalArticlepeer-review


This study investigates the real effects of management communication, specifically of forecasts or earnings guidance, on investment. Managers can signal the strength of their projects through accuracy in their earnings guidance. This leads less accurate managers to distort their investments; the equilibrium investment strategy involves over-investment when earnings exceed the forecast and under-investment when earnings fall short. Moreover, we find that managers are pessimistic in their forecasts, which helps to explain the corresponding well-documented empirical regularity. This downward bias increases the likelihood of investment manipulation but decreases the real loss from distortion. Interestingly, the over-investment induced by earnings guidance helps to mitigate the classic under-investment problem for a myopic manager with unobservable investment. Earnings guidance can therefore be value-increasing when managerial myopia is severe.

Original languageEnglish (US)
JournalContemporary Accounting Research
StateAccepted/In press - 2022

Bibliographical note

Publisher Copyright:
© 2022 The Authors. Contemporary Accounting Research published by Wiley Periodicals LLC on behalf of the Canadian Academic Accounting Association.


  • earnings guidance
  • investment distortion
  • management forecast
  • managerial myopia
  • manipulation
  • real effects


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