Pro Forma Accounting Reconciliation Disclosures: The Effect of Financial Reporting Knowledge and Information Viewing Behavior on Judgments of Nonprofessional Investors
50 Pages Posted: 23 Jul 2010 Last revised: 26 Aug 2010
Date Written: July 21, 2010
This study extends prior research by examining the extent to which financial reporting knowledge and information viewing behavior affect the influence of reconciled non-GAAP, or “pro forma” earnings disclosures on nonprofessional investors’ judgments. We find that the effects of pro forma earnings information on participants’ judgments differ, depending on their level of financial reporting knowledge and the amount of time they spent viewing the earnings reconciliation relative to other earnings information. Our results suggest that the effectiveness of financial reporting regulation may be dependent on characteristics of the general investing public that vary across investors. Regulators and standard setters need to be aware of the possible differential effects of financial reporting knowledge and investor type as they consider non-GAAP earnings reporting requirements.
Keywords: pro forma earnings, nonprofessional investors, Regulation G, information presentation
JEL Classification: C91, D83, M41
Suggested Citation: Suggested Citation