Investor Sentiment and Pro Forma Earnings Disclosures
Journal of Accounting Research, Vol. 50, No. 1, pp. 1-50, March 2012
45 Pages Posted: 3 Aug 2008 Last revised: 20 Feb 2012
Date Written: August 1, 2011
This study examines the influence of investor sentiment on managers’ discretionary disclosure of “pro forma” (adjusted) earnings metrics in earnings press releases. We find that managers’ propensity to disclose an adjusted earnings metric increases with the level of investor sentiment and, in particular, the propensity to disclose an adjusted number that exceeds the GAAP earnings figure. Further, our analyses suggest that as investor sentiment increases, managers (1) exclude higher levels of both recurring and nonrecurring expenses in calculating the pro forma earnings number and (2) emphasize the pro forma figure by placing it more prominently within the earnings press release. Additional analyses indicate that the association between investor sentiment and managers’ pro forma disclosure decisions at least partly reflects opportunistic motives. Finally, we find that managers’ own sentiment-driven expectations also play a role in their pro forma disclosure decisions.
Keywords: investor sentiment, pro forma earnings, corporate disclosure
JEL Classification: G14, G18, M41, M45
Suggested Citation: Suggested Citation