Publication Type

Journal Article

Publication Date

12-2003

Abstract

This study investigates whether market participants perceive pro forma earnings to be more informative and more persistent than GAAP operating income by analyzing a sample of 1,149 actual pro forma press releases. We find that pro forma announcers report frequent GAAP losses and are mostly concentrated in the service and high-tech industries. Our analyses of short-window abnormal returns and revisions in analysts’ one-quarter-ahead earnings forecasts indicate that pro forma earnings are more informative and more permanent than GAAP operating earnings. Our evidence suggests that market participants believe pro forma earnings are more representative of “core earnings” than GAAP operating income.

Keywords

Pro forma earnings, Information content of earnings, Persistence of earnings, Analysts’ forecasts

Discipline

Accounting | Corporate Finance

Research Areas

Financial Intermediation and Information

Publication

Journal of Accounting and Economics

Volume

36

Issue

1-3

First Page

285

Last Page

319

ISSN

0165-4101

Identifier

10.1016/j.jacceco.2003.06.001

Publisher

Elsevier

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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