One might expect companies that miss their earnings targets to slow down, temper expectations and work to maintain investors’ trust with more judicious forecasts. Many, however, double down instead, announcing even loftier goals for the next period.
That’s according to a new study by researchers at Waseda University’s School of Business and Finance. The Tokyo-based research team analysed data from 3,273 publicly listed Japanese firms over a period of 12 years and found a consistent pattern: those that fell short of earnings targets often responded by setting even higher goals for the next period in an effort to restore investor confidence.
Perhaps more surprising than the tactic itself is the result. Firms that set ambitious goals after missing their targets in the previous period often saw their stock price rise, the researchers found – at least for a short time. This makes sense. Markets react more positively to confident projections than to cautious ones and investors will typically grant companies a small window of goodwill if they’re fed a fresh comeback story.
But many overly optimistic firms will eventually face a reckoning. In the report, Professor Konari Uchida, who co-led the research, wrote: “As target misses accumulate, investors may begin to recognise the pattern of biased estimates from firms with repeated earnings shortfalls. In this way, the market can begin to correct itself, punishing firms that continue to inflate expectations and rewarding those with more grounded forecasts. Yet, until that point, many firms benefit from the short-term gains of looking forward instead of back.”
The dangers of short-termism
Carrie Osman, the founder and CEO of Cruxy, a UK-based consultancy, says firms can buy a relief rally by pushing stretch targets after a miss. But successive misses will erode any trust developed with investors and push up the cost of capital. Moreover, decision-makers in the organisation could become fixated on chasing public commitments rather than focusing on building a profitable business.
“Missing targets isn’t just about numbers, it erodes credibility,” Osman says. “Externally, share prices tumble when expectations aren’t met, even if growth looks strong in absolute terms.” Internally, she adds, repeated misses breed cynicism and disengagement and may even drive employee attrition.
The study is a reminder that forecasts, as they’re presented, do not always reflect business potential. Investors, Osman says, must carefully scrutinise any assumptions or data, including contracts, customer conversations or market sizing. “Credibility itself should be treated as an asset,” she says. “Consistent delivery deserves to be rewarded and repeated over-optimism penalised.”
Reclaiming the narrative
For business leaders, shaping the financial narrative is difficult in the current climate. At the end of Q2 2025, 49,309 UK companies were in ‘critical distress’, according to a report by Begbies Traynor, an insolvency firm. That’s a 21.4% rise year-on-year.
Tariffs, stubborn inflation, weak consumer demand and rising labour costs, including increases in the minimum wage and employers’ National Insurance contributions, have dampened forecasts. With no clear relief in sight, firms are struggling to maintain investor and stakeholder confidence.
Consistent delivery deserves to be rewarded and repeated over-optimism penalised
The key, says Tal Brener, group CFO at Inshur, an insurance platform, is for business leaders to remain transparent about the variables that could impact results and explain to investors that earnings targets are not fixed, they are variable. Doing so will help to keep expectations in check and reduce the temptation to spin the narrative or exaggerate performance, he explains. “Quarterly and monthly reporting has a place, as you can track against your own objectives. But growth and business performance are rarely linear, which is why forecasts must be supported by analysis and insights.”
Brener adds that smart investors won’t over-react to fluctuations in the market. They will first determine whether any disruptions are significant enough to drastically alter the firm’s objectives. Therefore, he advises, business leaders should present information in a consistent manner and answer any questions transparently. “Investors simply want to understand whether you were resilient enough to lead with intention and pivot when you needed to. As always with life and business – don’t panic.”
Investors can handle bad news; they will not tolerate spin – at least not in the long term. Although upping the ante after a shortfall can buy temporary relief, businesses leaders would be better off resetting expectations with more realistic forecasts and clearly communicating any efforts to improve performance.
One might expect companies that miss their earnings targets to slow down, temper expectations and work to maintain investors' trust with more judicious forecasts. Many, however, double down instead, announcing even loftier goals for the next period.
That’s according to a new study by researchers at Waseda University’s School of Business and Finance. The Tokyo-based research team analysed data from 3,273 publicly listed Japanese firms over a period of 12 years and found a consistent pattern: those that fell short of earnings targets often responded by setting even higher goals for the next period in an effort to restore investor confidence.
Perhaps more surprising than the tactic itself is the result. Firms that set ambitious goals after missing their targets in the previous period often saw their stock price rise, the researchers found – at least for a short time. This makes sense. Markets react more positively to confident projections than to cautious ones and investors will typically grant companies a small window of goodwill if they're fed a fresh comeback story.
