Implications of Components of Income Excluded from Pro Forma Earnings for Future Profitability and Equity Valuation

26 Pages Posted: 4 Jun 2007

See all articles by Wayne R. Landsman

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Bruce L. Miller

University of California, Los Angeles (UCLA) - Accounting Area

Shu Yeh

National Taiwan University - College of Management

Abstract

This study addresses three research questions relating to total exclusions, special items, and other exclusions. Are each of these pro forma exclusion components forecasting irrelevant? Are each of the exclusion components value irrelevant? Are the valuation multiples on the exclusion components justified by their ability to forecast future profitability as predicted by the Ohlson (1999) model? Findings are generally consistent with the market-inefficiency results presented in Doyle et al. (2003). Total exclusions are valued negatively by the market despite the prediction that total exclusions will be valued positively. Valuation results also suggest that stocks with positive other exclusions are overpriced.

Suggested Citation

Landsman, Wayne R. and Miller, Bruce Leonard and Yeh, Shu, Implications of Components of Income Excluded from Pro Forma Earnings for Future Profitability and Equity Valuation. Journal of Business Finance & Accounting, Vol. 34, No. 3-4, pp. 650-675, April/May 2007, Available at SSRN: https://ssrn.com/abstract=990913 or http://dx.doi.org/10.1111/j.1468-5957.2007.02033.x

Wayne R. Landsman (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

Bruce Leonard Miller

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
(310) 825-1814 (Phone)

Shu Yeh

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
23
Abstract Views
1,396
PlumX Metrics