Hi,

My answer to your question is yes. You may wish to consult this excellent paper from the Generation foundation whose mission is to strengthen the field of sustainable capitalism. On the precise question of yours they advocate that there is little evidence supporting regular issuance of eps guidance and they discuss the perceived benefits and actual costs of the practice. Very well documented.

http://genfound.org/media/pdf-earnings-guidance-kks-30-01-14.pdf

BR

Sébastien

Dear Sebastien,

Thank you very much for your answer. This is wonderful !

Best wishes,

Yousra

Hi Yousra,

There is evidence in finance that the managers of public corporations might try to take some decisions to improve current performance if their compensation in related to short-term proxies of performance. 

In theory, managers should maximize the "intrinsic" or "fundamental" market value of equity. But the intrinsic value cannot be observed. What you have is the market value which in equilibrium should be equal to the intrinsic value. But at any particular moment in time, market and intrinsic values can be different. This is the reason why compensating managers is difficult. :-(

For example, a manager in which there is a conflict of interest between managers and shareholders is the time horizon. The 63-year old CEO of a pharmaceutical company may have the incentive to decrease R&D (Long-term investment) to improve current performance. The CEO will retire in two years. He is interested in the short-term when the firm needs long-term value-added decisions.

I hope this helps!

E.

Thank you very much, Eduardo.