Another Look at Gaap Versus the Street: An Empirical Assessment of Measurement Error Bias

Posted: 24 Jan 2007

See all articles by Daniel A. Cohen

Daniel A. Cohen

Texas A&M University College Station

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Maria Ogneva

University of Southern California - Marshall School of Business

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Abstract

Bradshaw and Sloan (2002) document a significant increase in the difference between the earnings response coefficients (ERCs) for GAAP and Street (I/B/E/S) earnings over the 1990s, suggesting that the market has become increasingly reliant or fixated on Street earnings. In this study we investigate whether, alternatively, an "errors in variables" problem caused by a mismatch between the definitions of realized and expected earnings drives the ERC divergence. Our findings suggest that results from conventional analyses of GAAP and Street ERCs, including the ERC divergence pattern, are significantly contaminated by measurement errors in earnings surprises.

Keywords: capital markets, analyst forecasts, earnings response coefficients, GAAP earnings, Street earnings, measurement error

JEL Classification: M4

Suggested Citation

Cohen, Daniel A. and Hann, Rebecca N. and Ogneva, Maria, Another Look at Gaap Versus the Street: An Empirical Assessment of Measurement Error Bias. Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=959226

Daniel A. Cohen

Texas A&M University College Station

Department of Accounting
College Station, TX 77843
United States

Rebecca N. Hann (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Maria Ogneva

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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