Stock ownership guidelines and analysts forecast guidance

Abstract

In this study, I examine the association between Stock Ownership Guidelines and the extent to which managers engage in analyst forecast guidance. Stock Ownership Guidelines are policies that companies adopt to obligate their executives (and board members) to acquire and hold a certain value of the company's stock. Consistent with my expectations, I find that having Stock Ownership Guidelines is positively associated with the extent of analyst forecast guidance. Additionally, I find that in firms that have adopted Stock Ownership Guidelines, forecasts are guided downward in the late years as compared to the early years of a CEO's tenure. Overall, my results suggest that adopting Stock Ownership Guidelines, a governance mechanism, might lead to sub-optimal managerial behavior.