Does Pro Forma Reporting Bias Analyst Forecasts?
AbstractStandard setters put much effort into the development of 'better' financial reporting standards, that is, standards that more accurately capture the economic substance of business activities. However, the more sophisticated accounting treatments caused by new standards, and the growing complexity of business activities as such, has made financial reports more difficult to understand. In response to this situation, some companies use pro forma reporting, which means that certain complex items required by financial reporting standards are excluded. This study adopts a user perspective and investigates how pro forma reporting affects analysts' judgments in an experimental setting. On the basis of psychological theory, our hypothesis suggests that analysts' judgments will be affected by differences in the way company performance is presented. Our results show that analysts who received both pro forma and Generally Accepted Accounting Principles (GAAP) information made significantly higher earnings per share (EPS) forecasts than those who received GAAP information only. It is argued that positive framing and higher levels of anchor explain this result, which suggests in turn that analysts' EPS forecasts can be manipulated by alternative ways of presenting company performance. Some possible implications of this finding for standard setters are discussed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal European Accounting Review.
Volume (Year): 16 (2007)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://taylorandfrancis.metapress.com/link.asp?target=journal&id=100166
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Susan M. Albring & María T. Cabán-García & Jacqueline L. Reck, 2010. "The value relevance of a non-GAAP performance metric to the capital markets," Review of Accounting and Finance, Emerald Group Publishing, vol. 9(3), pages 264-284, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.