Comparability of Street Earnings and Its Economic Consequences

41 Pages Posted: 12 Dec 2016 Last revised: 7 Aug 2018

See all articles by Zhan Gao

Zhan Gao

Lancaster University

Jiancheng Liu

Monash University

Date Written: July 31, 2018

Abstract

This paper examines the comparability of street earnings, which embed analysts’ non-GAAP adjustments. The comparability of street earnings has not been examined in the literature, despite that street earnings are distinctive from pro forma earnings. Using the De Franco et al.’s (2011) method, we measure the comparability of street earnings, GAAP earnings, and pro forma earnings. The results show that street earnings are significantly more comparable than GAAP earnings and pro forma earnings, supporting the benefit of non-GAAP adjustments by analysts. Moreover, we find that more comparable street earnings are more useful in predicting future earnings. In the supplementary analyses, we find that street earnings bring greater comparability improvement for firms that are larger, are followed by more analysts, are faced with more uncertainty, and experience major corporate events.

Keywords: Earnings comparability, Street earnings, Non-GAAP earnings

JEL Classification: M41

Suggested Citation

Gao, Zhan and Liu, Jiancheng, Comparability of Street Earnings and Its Economic Consequences (July 31, 2018). Available at SSRN: https://ssrn.com/abstract=2878768 or http://dx.doi.org/10.2139/ssrn.2878768

Zhan Gao

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom
44-1524-593-151 (Phone)

Jiancheng Liu (Contact Author)

Monash University ( email )

900 Dandenong Road
Caulfield East
Melbourne, Victoria 3145
Australia

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