Has the Regulation of Pro Forma Reporting in the U.S. Changed Investors’ Perceptions of Pro Forma Earnings Disclosures?

Forthcoming, Journal of Business Finance & Accounting

40 Pages Posted: 25 Apr 2011 Last revised: 18 Jun 2012

See all articles by Dirk E. Black

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy

Ervin L. Black

Steed School of Accounting

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

William G. Heninger

Brigham Young University - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: June 12, 2012

Abstract

We explore whether investors’ perceptions of pro forma earnings numbers have changed following the regulation of pro forma reporting imposed by the Sarbanes-Oxley Act of 2002 (SOX). First, we find that investors appear to pay more attention to pro forma earnings disclosures in the post-SOX period, consistent with the notion that they perceive that regulation generally renders these disclosures more credible. Second, the results indicate that investors discount aggressive pro forma earnings reports in both periods. However, they appear to discount at least some potentially misleading pro forma earnings disclosures more in the post-SOX period. Finally, our results imply that the regulation of pro forma reporting has increased the average quality of pro forma earnings disclosures by filtering out those that are most likely to be misleading. These results are consistent with the conclusions that (1) the quality of pro forma reporting has improved following SOX, and (2) investors’ perceptions of pro forma earnings metrics have changed in the post-SOX regulatory environment.

Keywords: Pro forma earnings, corporate disclosure, The Sarbanes-Oxley Act of 2002

JEL Classification: K22, M41

Suggested Citation

Black, Dirk E. and Black, Ervin L. and Christensen, Theodore E. and Heninger, William G., Has the Regulation of Pro Forma Reporting in the U.S. Changed Investors’ Perceptions of Pro Forma Earnings Disclosures? (June 12, 2012). Forthcoming, Journal of Business Finance & Accounting. Available at SSRN: https://ssrn.com/abstract=1818903 or http://dx.doi.org/10.2139/ssrn.1818903

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Ervin L. Black

Steed School of Accounting ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-2401 (Phone)

Theodore E. Christensen (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

William G. Heninger

Brigham Young University - School of Accountancy ( email )

Provo, UT 84602
United States

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