Being Counted and Remaining Accountable: Maintenance of Quarterly Earnings Guidance by U.S. Public Companies

Abstract

Organizations are often pressured to adopt and maintain institutionally supported practices. Why do some companies remain committed to these practices, despite high operational cost and widespread frustration with them? Although prior theorists have emphasized the importance of institutional pressure at the broader population level, less research attention has been paid to the abandonment of a practice as a result of resource dependence between a firm and market intermediaries. In this paper, we theorize intermediary coverage breadth and depth as two important structural indicators of resource dependence. Firms lacking in coverage breadth (as indicated by the degree of reporting by market intermediaries) and firms with deeper coverage (as evidenced by a prolonged relationship with market intermediaries) are less likely to abandon a practice due to an increase in power imbalance and mutual dependence within the firm-intermediary relationships. We also theorize how a firm’s resource dependence, as determined by coverage structure, moderates the firm’s sensitivity to (1) observed peer support for the practice, (2) the intermediary’s expectation regarding the continued use of the practice, and (3) performance deviations that fail to meet intermediary expectations. Our empirical study of the abandonment of quarterly earnings guidance by U.S. public companies during 2001–2010 provides overall support for our theoretical arguments.