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Institutions Want End To Earnings Guidance

Brancato Carolyn Kay | May 1, 2007

The Securities and Exchange Commission estimates hedge funds control more than $1.2 trillion in assets. That might represent only 5 percent of U.S. assets under management, but hedge funds account for more than 30 percent of all U.S. equity trading volume. Given the trend toward increased volatility, it’s not surprising to see renewed calls for companies to stop giving quarterly earnings guidance—on the theory that an undue focus on quarterly numbers generates volatility unrelated to the company’s underlying value.

What is surprising, however, is that large institutional investors such as public employee and union pension funds overwhelmingly endorse discontinuing quarterly earning guidance too.

Reports Of Short-Termism

The ultimate fear about earnings guidance is that it gives rise to a climate of “short-termism,” where investors ignore the long-term fundamental health of companies. Such worries have existed for years, but...

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