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GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings

Journal of accounting research, 2002-03, Vol.40 (1), p.41-66 [Peer Reviewed Journal]

Copyright 2002 The Institute of Professional Accounting, University of Chicago ;University of Chicago on behalf of the Institute of Professional Accounting, 2002 ;Copyright Institute of Professional Accounting Mar 2002 ;ISSN: 0021-8456 ;EISSN: 1475-679X ;DOI: 10.1111/1475-679X.00038 ;CODEN: JACRBR

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Title:
GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings
Author: Bradshaw, Mark T. ; Sloan, Richard G.
Subjects: Accounting ; Acquisitions & mergers ; Analytical forecasting ; Compensation ; Correlation analysis ; Earnings ; Earnings per share ; Efficient markets ; Equity method ; Financial management ; GAAP ; Generally accepted accounting principles ; Goodwill ; Investors ; Net income ; Optimism ; P values ; Rates of return ; Relevant alternatives ; Research & development expenditures ; Stock prices ; Studies
Is Part Of: Journal of accounting research, 2002-03, Vol.40 (1), p.41-66
Description: Managers, security analysts, investors, and the press rely increasingly on modified definitions of GAAP net income, known by such names as "operating" and "pro forma" earnings. We document this phenomenon and discuss competing explanations for the recent rise in the use of such modified earnings numbers and implications for the interpretation of related accounting research. Our results show that over the past 20 years there has been a dramatic increase in the frequency and magnitude of cases where "GAAP" and "Street" earnings differ. Further, there is a very strong bias toward the reporting of a Street earnings number that exceeds the GAAP earnings number. We also show that the market response to the Street earnings number has displaced GAAP earnings as a primary determinant of stock prices. Finally, through an analysis of earnings releases, we show that management has taken a proactive role in defining and emphasizing the Street number when communicating to analysts and investors.
Publisher: Boston, USA and Oxford, UK: Blackwell Publishers Inc
Language: English
Identifier: ISSN: 0021-8456
EISSN: 1475-679X
DOI: 10.1111/1475-679X.00038
CODEN: JACRBR
Source: Alma/SFX Local Collection
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GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings

Copyright 2002 The Institute of Professional Accounting, University of Chicago ;University of Chicago on behalf of the Institute of Professional Accounting, 2002 ;Copyright Institute of Professional Accounting Mar 2002 ;ISSN: 0021-8456 ;EISSN: 1475-679X ;DOI: 10.1111/1475-679X.00038 ;CODEN: JACRBR

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