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Many firms have recently decided to forego providing any projection of future earnings. Would this practice...

Many firms have recently decided to forego providing any projection of future earnings. Would this practice tend to improve or diminish efficient markets theory?
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Answer #1

The answer can be subjective, but as per the majority consensus, this would lead to efficient markets. Following can be the bullet reasons fo the same:

  • Estimating future earnings is not required by any law or regulation. It was just an age old practice to lure investors to invest in the company
  • Over the time, some of the people with vested interests and bullish nature tried to manipulate markets by posing higher future earnings. Since it is just an estimate no one is ever responsible even if it fails or passes with flying colors. Its like flip of a coin.
  • Though in majority of the cases, earning estimates are backed upon some credible premises, but it can only be relied for the time horizon of 1-2 years. Beyond that requires lots of judgements and less of facts.
  • Investors with not much knowledge will not get into trap of baseless estimates and will rely upon actual projections.
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