Although prior research reports that firms that consistently beat their earnings expectations are rewarded with a market‐valuation premium, most firms are inconsistent in the sign of their benchmark performance, sometimes missing and sometimes beating. In this paper, we report the results of multiple experiments to test the idea that potential investors, evaluating firms that have inconsistent benchmark performance, use a counting heuristic to discriminate among them. Our results provide strong support for the hypothesis that these investors distinguish among firms by counting the number of beats and misses they experience over an observed time interval. The judgmental effect of this beat‐frequency is incremental to the effect of the magnitude of the beats and misses of the benchmark. Our study has implications for firm managers who have inconsistent benchmark performance, suggesting that market participants do make systematic discriminations among such inconsistent firms. It also has implications for researchers by introducing a new theoretical construct to the literature—namely, the counting heuristic.

The provision of examples as implementation guidance is pervasive in accounting standards. Prior research has established that preparers engage in “example‐based reasoning,” a tendency to favor the accounting treatment in an example, even when the example does not exactly match the transaction at hand. In this paper, we investigate whether fact‐weighting guidance counteracts this tendency. Such guidance, now found in some accounting standards, indicates whether particular transaction facts are more important than others in determining the appropriate accounting treatment. Using an experiment, we find that fact‐weighting guidance does reduce preparers' tendency to favor the accounting treatment in an example. However, results also suggest that some degree of example‐based reasoning persists even with fact‐weighting guidance, and that preparers are not fully aware of how fact‐weighting guidance affects their judgments. Our findings have practical implications. They suggest to standard setters a potential remedy—namely, fact‐weighting guidance—for the misuse of accounting examples. They also provide insights to accounting preparers regarding how fact‐weighting guidance influences their judgments in ways they may not anticipate.