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The impact of pro forma profits on analyst forecasts: Some experimental evidence

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Author Info
Andersson, Patric () (Center for Economic Psychology)
Hellman, Niclas () (Department of Accounting and Managerial Finance)
Abstract

The trend of pro forma (non-GAAP) reporting has made it increasingly difficult for financial analysts and investors to evaluate company performance. This study investigates how pro forma reporting affects analysts’ judgments in a non-US experimental setting. The results show that analysts who received both pro forma and GAAP information made significantly higher EPS forecasts compared to analysts who only received GAAP information. The positive framing and the higher anchor level that the pro forma report creates are suggested explanations for this result.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Business Administration with number 2004:5.

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Length: 20 pages
Date of creation: 28 May 2004
Date of revision:
Publication status: Published in European Accounting Review, 2007, pages 277-298.
Handle: RePEc:hhb:hastba:2004_005

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Keywords: Financial analysts analyst forecasts pro forma profits

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  2. Bhattacharya, Nilabhra & Black, Ervin L. & Christensen, Theodore E. & Larson, Chad R., 2003. "Assessing the relative informativeness and permanence of pro forma earnings and GAAP operating earnings," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 285-319, December. [Downloadable!] (restricted)
  3. Mark T. Bradshaw, 2002. "GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings," Journal of Accounting Research, Blackwell Publishing, vol. 40(1), pages 41-66, 03. [Downloadable!] (restricted)
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  1. Andersson, Patric, 2004. "How well do financial experts perform? A review of empirical research on performance of analysts, day-traders, forecasters, fund managers, investors, and stockbrokers," Working Paper Series in Business Administration 2004:9, Stockholm School of Economics. [Downloadable!]
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