Signaling Firm Performance Through Financial Statement Presentation: An Analysis Using Special Items

53 Pages Posted: 13 Aug 2006 Last revised: 28 Jul 2009

Edward J. Riedl

Boston University - Questrom School of Business

Suraj Srinivasan

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: July 28, 2009

Abstract

This paper investigates whether managers’ presentation of special items within the financial statements reflects economic performance or opportunism. Specifically, we assess special items presented as a separate line item on the income statement (income statement presentation) to those aggregated within another line item with disclosure only in the footnotes (footnote presentation). Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers’ presentation choices in other contexts. Empirical results reveal that special items receiving income statement presentation are less persistent relative to those receiving footnote presentation. These results are consistent across numerous alternative specifications. Overall, the findings are consistent with managers using the income statement versus footnote presentation to assist users in identifying those special items most likely to differ from other components of earnings―that is, for informational, as opposed to opportunistic, motivations.

Keywords: special items, strategic reporting, presentation, voluntary disclosure, pro forma

JEL Classification: M41, M43, M44, M45

Suggested Citation

Riedl, Edward J. and Srinivasan, Suraj, Signaling Firm Performance Through Financial Statement Presentation: An Analysis Using Special Items (July 28, 2009). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=923898 or http://dx.doi.org/10.2139/ssrn.923898

Edward J. Riedl (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-2317 (Phone)

Suraj Srinivasan

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700

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