Investor Reactions to Management Earnings Guidance Attributions : The Effects of News Valence, Attribution Locus, and Outcome Controllability

We conduct two experiments to investigate how investors react to attributions accompanying management guidance. In our first experiment, we investigate the joint effect of attribution locus (external versus internal attribution) and guidance-news valence (positive versus negative guidance news) on investors' earnings judgments. We find that investors provide lower earnings estimates when management attributes negative guidance news to external factors than internal factors. When the guidance news is positive, the locus (internal versus external) of the attributions has no effect on investors' earnings estimates. In our second experiment, we separate out the effect of the attribution's outcome controllability (controllable versus uncontrollable) from that of attribution locus in a negative guidance news setting. We find that investors provide higher earnings estimates for internal/outcome controllable attributions than for internal/outcome uncontrollable attributions. Outcome controllability does not matter when attributions are external. Our study extends prior research by showing how the valence of management guidance and the characteristics of guidance attributions jointly influence investors' earnings judgments