Determinants and Consequences of Management Forecasts of Key Performance Indicators: Evidence from the Airline Industry

In this study, I examine the determinants and consequences of quarterly management guidance of key performance indicators (KPIs). I use a novel dataset of 457 firm-quarter observations in the airline industry and hand-collect information on the existence and properties of quarterly KPI guidance. Specifically, I collect data on quarterly KPI guidance for three KPIs used in airline the industry: available seat miles, revenue per available seat mile, and cost per available seat mile. Consistent with managers using quarterly KPI guidance to reduce analyst uncertainty, I find that managers are more likely to provide quarterly KPI guidance when initial analyst earnings per share (EPS) forecasts errors are large. I also find that firms with high analyst following, high growth prospects, and low financial performance are more likely to provide quarterly KPI guidance. I next examine whether quarterly KPI guidance is associated with improvements analyst EPS forecasts and find that quarterly KPI guidance is associated with reductions in analyst EPS forecast errors which results in more accurate analyst estimates of EPS at the end of the quarter. Together, these results demonstrate that quarterly KPI guidance is an alternative form of guidance that managers can use to reduce information asymmetry with analysts by providing forward-looking information about the underlying operations of the firm.