A Catering Theory of Earnings Guidance: Empirical Evidence and Stock Market Implications
Abstract
We propose and test a catering theory of earnings guidance. As predicted by our model, managers cater to reference point dependent investor preferences by issuing excessively optimistic earnings forecasts if their investors have experienced poor stock returns. Moreover, earnings guidance is most biased when managers strongly discount future outcomes, when the stock's payoff uncertainty is high, and when managers face low costs for issuing inaccurate forecasts. Catering via earnings guidance succeeds in moving stock market prices and induces mispricing which is partially corrected around the corresponding final earnings announcement.
Keywords
Management Guidance; Catering; Capital Gains Overhang; Stock Mispricing; Behavioral Finance
Cite as
Lohmeier, N., & Mohrschladt, H. (2026). A Catering Theory of Earnings Guidance: Empirical Evidence and Stock Market Implications. Journal of Financial and Quantitative Analysis. (accepted / in press (not yet published))Details
Publication type
Research article (journal)
Peer reviewed
Yes
Publication status
accepted / in press (not yet published)
Year
2026
Journal
Journal of Financial and Quantitative Analysis
Language
English
ISSN
0022-1090
DOI