Assessing the Relative Informativeness and Permanence of Pro Forma Earnings and Gaap Operating Earnings

51 Pages Posted: 6 Jan 2004

See all articles by Neil Bhattacharya

Neil Bhattacharya

Southern Methodist University (SMU) - Accounting Department

Ervin L. Black

Steed School of Accounting

Theodore E. Christensen

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

Chad R. Larson

University of Houston - Department of Accountancy & Taxation

Multiple version iconThere are 2 versions of this paper

Date Written: March 2003

Abstract

This study investigates whether market participants perceive pro forma earnings to be more informative and more persistent than GAAP operating income by analyzing a sample of 1,149 actual pro forma press releases. We find that pro forma announcers report frequent GAAP losses and are mostly concentrated in the service and high-tech industries. Our analyses of short-window abnormal returns and revisions in analyst' one-quarter-ahead earnings forecasts indicate that pro forma earnings are more informative and more permanent than GAAP operating earnings. Our evidence suggests that market participants believe pro forma earnings are more representative of "core earnings" than GAAP operating income.

Keywords: pro forma earnings, information content of earnings, persistence of earnings, analysts' forecasts

JEL Classification: G14, M40, M41

Suggested Citation

Bhattacharya, Neil and Black, Ervin L. and Christensen, Theodore E. and Christensen, Theodore E. and Larson, Chad Russell, Assessing the Relative Informativeness and Permanence of Pro Forma Earnings and Gaap Operating Earnings (March 2003). Available at SSRN: https://ssrn.com/abstract=311302 or http://dx.doi.org/10.2139/ssrn.311302

Neil Bhattacharya

Southern Methodist University (SMU) - Accounting Department ( email )

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

Chad Russell Larson

University of Houston - Department of Accountancy & Taxation ( email )

Bauer College of Business
4800 Calhoun Road
Houston, TX 77204
United States

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