The Quality of Pro Forma Earnings: An Examination of the Adverse Selection Component of the Bid-Ask Spread Around Earnings Announcements*

2008 ◽  
Author(s):  
Qianyun Huang ◽  
Terrance R. Skantz
Keyword(s):  
Adverse Selection ◽  
Earnings Announcements ◽  
Bid Ask Spread ◽  
Pro Forma Earnings ◽  
Pro Forma

The Timing of Quarterly ‘Pro Forma’ Earnings Announcements

2012 ◽  
Vol 39 (3-4) ◽  
pp. 315-359 ◽  
Author(s):  
Nerissa C. Brown ◽  
Theodore E. Christensen ◽  
W. Brooke Elliott
Keyword(s):  
Earnings Announcements ◽  
Pro Forma Earnings ◽  
Pro Forma

Are Investors Influenced by Pro Forma Emphasis and Reconciliations in Earnings Announcements?

2006 ◽  
Vol 81 (1) ◽  
pp. 113-133 ◽  
Author(s):  
W. Brooke Elliott
Keyword(s):  
Opposite Direction ◽  
Earnings Announcements ◽  
Cognitive Effect ◽  
Nonprofessional Investors ◽  
Pro Forma Earnings ◽  
Mere Presence ◽  
Earnings Performance ◽  
Pro Forma

This study presents the results of an experiment that examines how two underlying characteristics of pro forma earnings announcements, pro forma emphasis and the presence of a quantitative reconciliation, influence nonprofessional investors' and analysts' reliance on pro forma disclosures. The results indicate that the emphasis management places on pro forma earnings, not the mere presence of pro forma earnings, influences nonprofessional investors' judgments and decisions, but that this influence is mitigated by the presence of a quantitative reconciliation. Further analysis reveals that the influence of pro forma emphasis on nonprofessional investors' judgments and decisions seems to be the result of an unintentional cognitive effect as opposed to the perceived informativeness of the earnings figure emphasized by management. Analysts' judgments and decisions were also affected by the presence of reconciliation, but in the opposite direction to those of nonprofessional investors. Specifically, the presence of a quantitative reconciliation led analysts to view pro forma earnings as more reliable, increasing their reliance on the pro forma disclosure in judging the earnings performance of the firm.

Do Managers Use Pro Forma Earnings Disclosures to Cater to Investor Sentiment?*

2008 ◽  
Author(s):  
Nerissa C. Brown ◽  
Theodore E. Christensen ◽  
W. Brooke Elliott ◽  
Richard Dean Mergenthaler
Keyword(s):  
Investor Sentiment ◽  
Pro Forma Earnings ◽  
Earnings Disclosures ◽  
Pro Forma

Financial Reporting Regulation and the Reporting of Pro Forma Earnings

2006 ◽  
Vol 20 (1) ◽  
pp. 39-55 ◽  
Author(s):  
Gary M. Entwistle ◽  
Glenn D. Feltham ◽  
Chima Mbagwu
Keyword(s):  
Financial Reporting ◽  
Primary Objective ◽  
Public Confidence ◽  
Strong Impact ◽  
Policy Makers ◽  
Generally Accepted Accounting Principles ◽  
Pro Forma Earnings ◽  
Sarbanes Oxley ◽  
Evidence For Policy ◽  
Pro Forma

A primary objective of the Sarbanes-Oxley Act is to bolster public confidence in the U.S. capital markets. The SEC aims to achieve this objective in part by regulating the use of alternate earnings measures (colloquially referred to as “pro forma” earnings) that differ from generally accepted accounting principles. This paper examines whether firms change their reporting practice in response to pro forma regulation. Specifically, it examines whether the use, calculation, and presentation of pro forma measures by S&P 500 companies changes between 2001 and 2003. We document three significant shifts in pro forma reporting in this period. First, the proportion of firms reporting pro forma earnings declines from 77 to 54 percent. Second, by 2003, pro forma is used in a less biased manner. Not only is the proportion of firms using pro forma earnings to increase reported income smaller than in 2001, but also the magnitudes of these increases are reduced. Third, in 2003, firms present pro formas in press releases in a much less prominent and less potentially misleading manner. These results suggest a strong impact of the recent regulation of pro forma reporting and provide important empirical evidence for policy makers.

Earnings Informativeness and Strategic Disclosure: An Empirical Examination of “Pro Forma” Earnings

2004 ◽  
Vol 79 (3) ◽  
pp. 769-795 ◽  
Author(s):  
Barbara A. Lougee ◽  
Carol A. Marquardt
Keyword(s):  
Market Efficiency ◽  
Predictive Ability ◽  
Press Releases ◽  
Empirical Examination ◽  
Strategic Disclosure ◽  
Earnings Information ◽  
Pro Forma Earnings ◽  
Earnings Informativeness ◽  
Earnings Surprises ◽  
Pro Forma

This paper provides evidence on the characteristics of firms that include “pro forma” earnings information in their press releases, whether the usefulness of pro forma earnings to investors varies systematically with these characteristics, and whether the investor response to pro forma earnings is consistent with market efficiency or mispricing. Using a sample of 249 press releases from 1997–99, we find that firms with low GAAP earnings informativeness are more likely to disclose pro forma earnings than other firms. We also find that strategic considerations, measured using the direction of GAAP earnings surprises, are an important determinant of pro forma reporting. In addition, our examination of the relative and incremental information content of pro forma earnings shows that investors find pro forma earnings to be more useful when GAAP earnings informativeness is low or when strategic considerations are absent. Tests of the predictive ability of pro forma earnings for future profitability and returns are mixed, and we therefore cannot conclusively determine whether the investor reaction to pro forma earnings at the time of the press release is consistent with market efficiency or mispricing. The paper contributes to the growing literature on pro forma earnings and more generally to the literature on voluntary and strategic disclosure.

Sign in / Sign up

Export Citation Format

Share Document