A mid-cap company in Singapore announces, in a tidy paragraph near the bottom of a results release, that it will no longer provide quarterly EPS guidance. The reasoning is impeccable. Quarterly guidance encourages short-termism, the board has decided to focus the market on long-term value, and the company joins a respectable list of firms that have done the same. The release is calm, almost pleased with itself.
The stock falls about five percent that day.
The IR team is, once again, appropriately confused. They did everything the thoughtful literature recommended. They stopped feeding the quarterly-print machine. They redirected the conversation toward the long cycle. And the market, which is supposed to reward exactly this kind of maturity, treated the announcement as bad news and sold.
What happened is that the market does not read a guidance withdrawal as a philosophy. It reads it as a confession. And the awkward part, for me, is that the evidence proving this is the same evidence I used to take guidance apart in the first place.
1The position we took
Essay 09 in The Bedrock Papers is called Conservative Guidance Is a Habit, Not a Discipline, and I wrote it. The argument is that conservative guidance, consistently applied (the single most-practised principle in modern IR) quietly games itself. Guide two cents light every quarter and analysts eventually notice. They model the conservatism in. The published consensus migrates above the guided number. The cushion stops being a cushion. It becomes the floor, and the company is now judged against an estimate that already removed the padding.
"The guided number becomes the floor of expectations rather than the centre of them."
I stand by all of that. The essay enlists four cross-disciplinary critics against the practice (Cunningham from the Berkshire record, Lev on the empirical evidence, Damodaran on valuation, Statman on behavioural finance) and the diagnosis holds. Systematic conservatism degrades the information content of the guided number until it stops being information and becomes a target the CFO is committed to clearing.
But here is the problem with the essay, and it is a problem of inference rather than of fact. A CFO reading it draws an obvious conclusion. If conservative guidance games itself, the fix is to guide less, loosen the guidance, or stop guiding altogether. The essay even gestures approvingly at the Berkshire posture of communicating without forecasting. The natural exit from "conservative guidance is a trap" is "so get out of guidance."
That exit is the trap. And the person who shows you why is Baruch Lev, the same witness I called to the stand in essay 09.
2The counter-case, steelmanned
Lev is the empirical spine of essay 09. I used his work to argue that the famous five-percent statistic does not mean what IR practitioners think it means. So let me read all of Lev, not just the convenient half, because the rest of him is a direct answer to the inference my own essay invites.
Houston, Lev, and Tucker studied 222 companies that publicly stopped quarterly guidance against 680 matched companies that kept it. The number that travels with the study (a mean five-percent stock-price drop on cessation, from the companion work by Chen, Matsumoto, and Rajgopal) is the one essay 09 reframes. I argued, correctly, that the drop is not proof guidance is valuable. It is proof that in the population Lev studied, the companies that stopped were sitting on bad news. In Lev's reading, the stoppers clammed up simply because they were sitting on bad news. The market read the cessation as the signal it was.
But notice what that finding actually establishes, because essay 09 used it to defang the pro-guidance argument and then walked away before drawing the obvious consequence. If the market has learned that companies stop guiding when they are about to disappoint, then withdrawal is a signal regardless of why any individual company withdraws. The Singapore mid-cap with the tidy paragraph and the genuinely high-minded board gets priced as if it were sitting on bad news, because the reference class it just joined was sitting on bad news. The market does not read your motive. It reads your action against the base rate.
Cessation is a confession whether or not you have anything to confess.
That is the first leg of the steelman, and it comes entirely from the evidence I already endorsed. The second leg is the part of Lev I left out.
Lev does not merely explain the five-percent drop. He systematically demolishes the case for ending guidance, the case my essay's inference quietly leans toward. The CFA Institute, the Business Roundtable, the U.S. Chamber of Commerce, and McKinsey all called for ending quarterly guidance, citing short-termism and wasted effort. Lev rebuts them point by point. The "corroborating research" that the anti-guidance camp leaned on was a 124-response online survey split 53% to 43%, which, as he notes, is "not exactly an overwhelming difference." And abstaining from guidance does not stop analysts from issuing quarterly estimates anyway, so the company that stops guiding does not escape the quarterly game. It just forfeits its own voice in it. The short-termism the anti-guidance camp wanted to cure survives the cure.
The third leg is the affirmative case, which essay 09 never fairly put. Guidance has documented benefits. Houston, Lev, and Tucker found that managers were more accurate than analysts in 70% of quarterly comparisons and less accurate in only 26%. Over half of analysts revised toward the guidance within two days, around 70% within ten. That is not a decorative finding. It says management's number is usually the better number, and that the market actually moves to it. Guidance enriches the information environment, and the enrichment shows up as higher prices and lower volatility, which is to say a lower cost of capital.
Bragg, from the operational side, makes the mechanical version of the same point, and it is worth walking through the plumbing because the plumbing is where the cost lives. Without guidance, analysts and investors form their own widely varying estimates. The range of expectations widens. A wider range is, definitionally, higher volatility in the consensus the stock trades against. Volatility does two things, both expensive. It attracts short sellers, who feed on the gap between a stock's possible outcomes. And it drives away the institutions that prefer narrow, predictable price ranges, which lowers demand for the shares. Lower demand and a higher discount rate are the same thing seen from two ends, and the result is a higher cost of capital: the company has to issue more shares to raise the same money. Guidance, in this telling, exists primarily to narrow the range of expectations, and narrowing the range is what keeps the cost of capital down. For a micro-cap with no analyst following at all, the information vacuum is total, and guidance is the only instrument the company has to fill it. There, guidance is more necessary, not less.
So the steelman, assembled entirely from sources essay 09 either cited or should have, runs like this. The market treats guidance withdrawal as a confession of bad news, because that is what withdrawal has historically signalled. The intellectual case for stopping (short-termism, wasted effort) rests on thin evidence Lev has already dismantled, and stopping does not even achieve its stated goal because analysts keep estimating. And guidance, kept, delivers real benefits: a tighter consensus and lower volatility, coverage you keep rather than forfeit, and a cheaper cost of capital at the end of it. The exit my essay tempts the reader toward is the one move the evidence most clearly warns against.
3The verdict: refine
The diagnosis in essay 09 stands. I am not conceding it. Conservative guidance, consistently applied, does game itself. The cushion does become the floor. Analysts do model the conservatism in until the company is paying the cost of caution without the credibility benefit. That mechanism is real, and nothing in Lev rescues the systematic sandbag.
What needs refining is the exit. Essay 09 diagnosed the disease and left the reader reaching for the wrong cure. The cure is not less guidance. It is not stopping. The market, having learned to read cessation as a confession, will price your withdrawal as bad news no matter how clean your conscience. The cure is differently-calibrated guidance. Keep guiding. Drop the systematic sandbag.
Keep guiding. Drop the systematic sandbag.
There is a behavioural reason the confession reads so loudly, and it is worth naming because it sits underneath the price action. A guidance regime is an implicit promise: we will tell you where we think we are landing. Withdraw it and you are not making a neutral announcement about disclosure philosophy. You are breaking a promise the market had come to rely on, and the market reacts to broken promises the way people do, which is worse than it reacts to a number it never expected in the first place. An investor who has been told for years to expect a guided range, and is then told the range is going away, does not coolly re-estimate intrinsic value. He wonders what changed, assumes the worst, and reaches for the exit before the next investor does. The five-percent drop is partly information and partly that very human flinch, and a board that thinks it is making a high-minded decision about long-termism has usually not modelled the flinch.
That is the synthesis the two essays make together once you stop pretending they are in opposition. The problem essay 09 identified is the conservatism, not the guidance. The systematic two-cent shade is what gets gamed, what trains analysts to remove the cushion, what turns the guided number into a target. The act of guiding is not the problem. The padding is. So the fix is to guide honestly (best estimate, not a managed floor) using the alternatives that do not carry the cushion-gaming pathology: ranges on the income-statement drivers rather than a single managed number, more frequent interim information so the quarterly print is half-known before it lands, or long-term directional goals the company commits to over years rather than landing zones it clears by two cents. Each of those keeps the company in the information environment, retains the coverage and the volatility-smoothing, and removes the sandbag that essay 09 correctly attacked. None of them is a withdrawal. All of them are guidance, recalibrated.
I should be honest about one thing the steelman itself forces, because the integrity of this whole exercise depends on not overclaiming. The evidence on guidance is genuinely split. Lev makes the pro case, but McKinsey's 2006 study found no evidence that frequent earnings guidance affects valuation multiples, improves shareholder returns, or reduces volatility, with the only measurable effect being increased trading volume. Cunningham goes further, arguing that companies which quit forecasting tend to attract a larger proportion of long-term institutional holders, the very base I spend most of my time telling clients to cultivate. Palizza, fairly, notes that aggregate studies may not translate cleanly to any individual company. So I am not telling you that guidance is empirically proven to lower your cost of capital. I am telling you something narrower and better supported: that stopping reads as a confession, that the intellectual case for stopping is weaker than its proponents claim, and that the gameable thing essay 09 attacked is the conservatism, which you can remove without removing the guidance.
The Asian-market texture sharpens this rather than softening it. Most regional regulators (OJK in Indonesia, MAS in Singapore, HKEx, India's SEBI) treat forward-looking statements as voluntary. Essay 09 read that latitude as an opening to move away from point-estimate guidance, toward ranges, direction, or the Berkshire no-forecasting posture. The confession-market evidence adds a caution to that reading. In thinly-covered regional names (the micro-caps and family mid-caps where one or two analysts carry the stock, or none do) the information vacuum is already wide, and withdrawing what little guidance exists removes the main thing narrowing the range of expectations. For those issuers, stopping is not a sophisticated signal of long-termism. It is the loudest confession available, sent into a market thin enough that it echoes. The regional latitude is an opening to recalibrate guidance. It is not an opening to drop it.
So the verdict on essay 09 is refine, and the refinement is precise. Keep the diagnosis: conservatism gets gamed. Reject the inference: do not stop guiding. The market runs a confession booth, and a guidance withdrawal walks straight into it. The fix is to keep talking and tell the truth (your real number, not a managed floor) which is, when you say it plainly, what the whole Bedrock series was arguing for in the first place.
