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Mandatory Earnings Disaggregation and the Persistence and Pricing of Earnings Components

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  • Venter, Elmar R.
  • Cahan, Steven F.
  • Emanuel, David

Abstract

We investigate whether the special item anomaly in the U.S. exists in an environment where the separation of non-recurring items from earnings is mandated. We use South African data, as the separate disclosure of specific non-recurring items has been mandatory since 2000. Our results show that, other than the cash flow component of earnings, none of the other earnings components reflects significant mispricing. When additional explanatory variables are included in the analyses, the mispricing of the cash flow component disappears. This evidence suggests that when the disclosure of non-recurring items is mandated, investors are able to price earnings components in a manner that is consistent with the actual levels of persistence of these components.

Suggested Citation

  • Venter, Elmar R. & Cahan, Steven F. & Emanuel, David, 2013. "Mandatory Earnings Disaggregation and the Persistence and Pricing of Earnings Components," The International Journal of Accounting, Elsevier, vol. 48(1), pages 26-53.
    • Handle: RePEc:eee:accoun:v:48:y:2013:i:1:p:26-53
    DOI: 10.1016/j.intacc.2013.01.005
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    2. Sascha B. Herr & Peter Lorson & Jochen Pilhofer, 2022. "Alternative Performance Measures: A Structured Literature Review of Research in Academic and Professional Journals," Schmalenbach Journal of Business Research, Springer, vol. 74(3), pages 389-451, September.

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    More about this item

    Keywords

    non-recurring items; pro forma earnings; special item anomaly; South Africa;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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