The effect of earnings guidance disclosure on investor reactions to corporate misconduct and CEO succession

Jun Wang

Meditari Accountancy Research, 2025, vol. 34, issue 1, 196-218

Abstract: PurposeThis study aims to explore the effect of earnings guidance disclosure on investor reactions to different types of corporate misconduct and chief executive officer (CEO) successor origin.Design/methodology/approachThis study uses a 2 × 2 × 2 between-subjects experiment and manipulates three independent variables: earnings guidance disclosure (present versus absent), the type of corporate misconduct (integrity versus competence) and type of CEO successor origin (insider versus outsider).FindingsThe results indicate that in the absence of earnings guidance disclosure, integrity-related corporate misconduct leads to lower investors’ earnings estimates compared to competence-related corporate misconduct. Furthermore, following corporate misconduct, an outsider CEO leads to higher investors’ earnings estimates than an insider CEO. In addition, in the absence of earnings guidance disclosure, the impact of CEO successor origin (insider CEO versus outsider CEO) on investors’ earnings estimates is more pronounced following integrity-related corporate misconduct than competence-related corporate misconduct. However, when management releases optimistic earnings guidance, such disclosure mitigates differences in earnings estimates resulting from different types of corporate misconduct and CEO successor origin.Practical implicationsThe findings suggest that optimistic earnings guidance can serve as an effective communication strategy to mitigate negative investor reactions following corporate misconduct and CEO succession. The study also offers insights for companies, investors and regulators by highlighting the joint influence of earnings guidance, misconduct type and CEO successor origin on investor judgments, reinforcing the importance of managing investor expectations in the aftermath of reputational crises and leadership transitions.Originality/valueThis study contributes to the understanding of the role of earnings guidance disclosure in influencing investor expectations of future earnings following corporate misconduct and CEO succession.

Keywords: Experiment; Corporate misconduct; CEO succession; Earnings estimates; Earnings guidance disclosure; Investor judgement (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:medarp:medar-12-2024-2768

DOI: 10.1108/MEDAR-12-2024-2768

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