The Value Relevance of Alternative Earnings Measures: A Comparison of Pro Forma, GAAP, and I/B/E/S Earnings

Entwistle, Gary M.; Feltham, Glenn D.; Mbagwu, Chima

doi:10.1177/0148558x1002500205

Cited by 51 publications

(30 citation statements)

References 60 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Entwistle et al . () extend these studies by showing that actual pro forma measures contained in earnings press releases are significantly more value relevant than Street earnings, which in turn are more value relevant than GAAP earnings. The findings from these studies suggest that headline earnings should exhibit higher value relevance than GAAP earnings.…”

Section: Prior Research and Hypothesesmentioning

confidence: 65%

“…Our evidence is also consistent with evidence from the US and elsewhere, which shows that non‐GAAP earnings reported voluntarily are more value relevant than GAAP earnings (Brown and Sivakumar, ; Entwistle et al ., ). However, the evidence from the non‐GAAP literature is difficult to interpret as the evidence is clouded by the controversy surrounding the opportunistic use of non‐GAAP earnings by managers in voluntary settings.…”

Section: Resultsmentioning

confidence: 97%

“…Former SEC chairman, Harvey Pitt, points out that ‘investors anxious for current, simplified and comprehensible financial reporting are today more likely to rely on a company's pro forma disclosures than the same company's meticulously, mandated financial disclosure’ (Pitt, ). Consistent with these statements, the literature indicates that non‐GAAP earnings are more value relevant than GAAP earnings (Bradshaw and Sloan, ; Brown and Sivakumar, ; Entwistle et al ., ).…”

Section: Prior Research and Hypothesesmentioning

confidence: 97%

“…Historically, research has been focused on one or more of these partitions of non‐GAAP earnings, and the pervasive finding from the research is that non‐GAAP earnings are a more value relevant measure than GAAP earnings (Bhattacharya et al ., ; Bradshaw and Sloan, ; Brown and Sivakumar, ; Entwistle et al ., ; Wieland et al ., ).…”

mentioning

confidence: 99%

See 3 more Smart Citations

The Value Relevance of Mandatory Non‐GAAP Earnings

Venter

Emanuel

Cahan

2014

Abacus

View full text Add to dashboard Cite

This paper examines the value relevance of earnings components where there is a mandatory requirement to report generally accepted accounting principles (GAAP) earnings and non-GAAP earnings, and where the items to be eliminated from GAAP earnings are defined in detail. The setting is different from non-GAAP earnings disclosures presented in the United States and elsewhere, where managers have discretion over whether to report a non-GAAP earnings number, and what to exclude from GAAP earnings. Our mandatory setting enables us to report value relevance results that are not confounded by managers' discretionary choices regarding non-GAAP earnings exclusions.We use price-level regressions, based on the Ohlson (1995) model, to test for incremental and relative value relevance. The results show that non-GAAP earnings reported under a mandatory regime have higher value relevance than GAAP earnings. The disaggregation of these items is useful to investors in a setting where managerial motivations are minimized.

show abstract

Section: Prior Research and Hypothesesmentioning

confidence: 65%

Section: Resultsmentioning

confidence: 97%

Section: Prior Research and Hypothesesmentioning

confidence: 97%

mentioning

confidence: 99%

See 2 more Smart Citations

The Value Relevance of Mandatory Non‐GAAP Earnings

Venter

Emanuel

Cahan

2014

Abacus

View full text Add to dashboard Cite

show abstract

“…We therefore see an underused potential of exploratory experimental research directed at building accounting theory and call for further exploration of the full potential of experiments in advancing accounting theory. Again referring to the examples of pro forma earnings disclosure and ESG reporting, this becomes even more evident, considering the number of published experimental studies (four and seven) vs. the numerous archival-empirical studies (for an overview of the extensive literature, see e.g., Entwistle et al, 2010 andKühnen, 2013).…”

Section: Realising the Full Potential Of Experiments In Building And mentioning

confidence: 99%

Testing vs. building accounting theory with experimental research: insights from management research

Reimsbach

Hauschild

2015

IJBAF

View full text Add to dashboard Cite

With this conceptual paper, we want to raise scholars' awareness of the underused potential of experiments in accounting research. We refer to research taxonomies from the management discipline to explore the role of experimental research in testing and building accounting theory. Although the contribution of laboratory research to testing theory is well acknowledged, we argue that exploratory experimental research efforts also have the potential to build new theory, pointing at the underused potential of experiments in current accounting research. In doing so, we (i) provide a clear understanding of theory building and theory testing in accounting research; (ii) present a guideline for assessing the degree of theory building and theory testing inherent in any (experimental) study. Furthermore, we argue that an inter-study triangulation aligning experimental and archival methodologies will have the potential to produce results that are robust to internal and external validity concerns, thus advancing accounting theory.

show abstract

Non‐GAAP earnings disclosure post 2010 SEC regulation change

Henry

Weitz

Rosenthal

2019

J Corp Accounting Finance

View full text Add to dashboard Cite

In this article, we explore the disclosure of non‐GAAP earnings by large, publicly traded companies, and the possible impact of the 2010 change in Regulation G and S‐K on corporate reporting behavior. The reporting of non‐GAAP earnings measures is not required for public companies, nor are these measures audited. There exists considerable leeway in the manner and extent to which companies can report and calculate non‐Generally Accepted Accounting Principles (GAAP) earnings. Not surprisingly, non‐GAAP reporting standards are a concern for regulators trying to uphold the consistency and comparability of financial reporting. We collected the fourth quarter earnings releases of Standard and Poor's (S&P) 100 companies for the years 2010 through 2016 to study their reported annual non‐GAAP earnings disclosures, if any. Adjustments made to GAAP earnings were classified into eight common categories (e.g., Restructuring Charges, Tax Related Benefits/Charges) in order to calculate the magnitude, materiality, and nature of the adjustments reported. Our analysis shows that the number of companies reporting non‐GAAP earnings increased over our period of study, with a significant increase occurring after the 2010 liberalization of the Regulation G rules. We found an increase in all categories of adjustments and that most were −10% to +10% of net income. The median values of adjustments were positive in almost all the categories indicating non‐GAAP adjustments generally increase non‐GAAP net earnings. We observed many instances of companies reporting the same category of non‐GAAP earnings over multiple years. Further, we find that companies that do not report non‐GAAP earnings have higher market capitalizations than non‐GAAP earnings reporters. This study contributes to the research of non‐GAAP earnings reporting with an extensive analysis of the disclosure, the nature and magnitude of adjustments companies report, and the characteristics of those companies that choose to disclose.

show abstract

The Value Relevance of Alternative Earnings Measures: A Comparison of Pro Forma, GAAP, and I/B/E/S Earnings

Cited by 51 publications

References 60 publications

The Value Relevance of Mandatory Non‐GAAP Earnings

The Value Relevance of Mandatory Non‐GAAP Earnings

Testing vs. building accounting theory with experimental research: insights from management research

Non‐GAAP earnings disclosure post 2010 SEC regulation change

Contact Info

Product

Resources

About