McKinsey is leading a growing backlash against companies providing guidance on earnings, after concluding the quarterly ritual increases share price volatility and short-termist management.

The consultancy, which advises many of corporate America's biggest names, argues that Wall Street's addiction to company forecasts may be doing more harm than good. The conclusions - in a research paper by one of its top corporate finance partners - align with the mood of companies such as Citigroup, Motorola, Intel, Ford and General Motors that now limit how much guidance they give.

Tim Koller, a partner in McKinsey's New York office, said: "Because guidance creates short term trading opportunities, it increases rather than decreases volatility. Certain types of hedge funds like it, but then there are some hedge funds who cannot tell you what the company makes."

Nevertheless, many companies are reluctant to stop the practice, especially when slowing earnings growth means some will be accused of trying to hide bad news.

McKinsey says better ways of providing transparency for investors are by focusing on disclosure about business fundamentals and long-range goals.

A survey of executives to be published in the McKinsey Quarterly found most companies believed guidance was necessary because it increased the liquidity and the value of their shares.

But analysis of company performance found no relationship between guidance and valuation. McKinsey focused on relatively large companies and warns its conclusions may not be suitable for smaller companies.

More important, the painful consequences of missing earnings guidance provide an incentive for management to focus too much attention on the short term. It can also also lead companies to manage quarterly earnings inappropriately to create theillusion of stability, it said.