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Disagreement over the persistence of earnings components: evidence on the properties of management-specific adjustments to GAAP earnings

Author

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  • Young-Soo Choi

    (Lancaster University)

  • Stephen Lin

    (Florida International University)

  • Martin Walker

    (University of Manchester)

  • Steven Young

    (Lancaster University)

Abstract

We examine disagreement between management and Thomson Datastream over the persistence of earnings components. Using income statement and footnote disclosures, we identify the source and properties of disputed items. Disagreements typically reflect opaque reporting practices (for example, in the case of transitory operating items) and restrictive classification rules (for example, in the case of discontinued operations). Incremental and relative value relevance tests suggest that the majority of management-specific adjustments reflect appropriate classification of earnings components by insiders. Nevertheless, evidence consistent with strategic disclosure does emerge for a subset of management adjustments.

Suggested Citation

  • Young-Soo Choi & Stephen Lin & Martin Walker & Steven Young, 2007. "Disagreement over the persistence of earnings components: evidence on the properties of management-specific adjustments to GAAP earnings," Review of Accounting Studies, Springer, vol. 12(4), pages 595-622, December.
    • Handle: RePEc:spr:reaccs:v:12:y:2007:i:4:d:10.1007_s11142-007-9048-x
    DOI: 10.1007/s11142-007-9048-x
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    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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