Gaap Versus the Street: An Empirical Assessment of Two Alternative Definitions of Earnings

43 Pages Posted: 25 Aug 2000

See all articles by Mark T Bradshaw

Mark T Bradshaw

Boston College

Matthew Moberg

Franklin Resources, Inc.

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: June 2000

Abstract

Security analysts, investors and the press are increasingly relying on modified definitions of GAAP net income, known by such names as 'operating EPS' and 'pro forma EPS.' These new 'Street' definitions of EPS exclude items such as 'non-recurring' and 'non-cash' charges. Moreover, this move to Street definitions of EPS has been accompanied by a dramatic increase in the proportion of corporate expenses that are classified as excluded items. The outcome has been a large and growing gap between the GAAP EPS that is reported in firms' financial statements and the Street EPS that is tracked by analysts and priced by investors. This increasing use of 'Street' definitions of earnings represents a subtle form of earnings management and has important implications for both academics and practitioners.

Keywords: Earnings, analyst forecasts, earnings management, managerial discretion

JEL Classification: M4, G1, G2

Suggested Citation

Bradshaw, Mark T and Moberg, Matthew and Sloan, Richard G., Gaap Versus the Street: An Empirical Assessment of Two Alternative Definitions of Earnings (June 2000). Available at SSRN: https://ssrn.com/abstract=232981 or http://dx.doi.org/10.2139/ssrn.232981

Mark T Bradshaw (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Matthew Moberg

Franklin Resources, Inc.

P.O. Box 2258
Rancho Cordova, CA 95741-2258
United States

Richard G. Sloan

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

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