A Discussion of 'Assessing the Relative Informativeness and Permanence of Pro Forma Earnings and Gaap Operating Earnings'
Posted: 28 Nov 2003 Last revised: 15 Jul 2010
Date Written: July 15, 2010
By analyzing a carefully constructed earnings announcements sample that discloses a 'pro forma' earnings number, Bhattacharya, Black, Christensen, and Larson (2002) contribute to recent research documenting increasing differences between GAAP earnings and alternative earnings definitions followed by capital markets. The paper provides interesting descriptive data on pro forma earnings per share relative to both GAAP earnings per share and actual earnings per share as tracked by I/B/E/S. Also, the authors conduct tests of the relative informativeness and persistence of these three earnings measures. Econometric and data limitations inhibit the inferences that can be drawn from some of these tests.
Keywords: pro forma earnings, information content of earnings, persistence of earnings, analysts' forecasts
JEL Classification: G12, G14, G29, M41, M43
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