IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v3y1998i1d10.1023_a1009680401226.html
   My bibliography  Save this article

An Empirical Evaluation of the Usefulness of Non-GAAP Accounting Measures in the Real Estate Investment Trust Industry

Author

Listed:
  • Thomas D. Fields

    (Northwestern University)

  • Srinivasan Rangan

    (University of California-Davis)

  • S. Ramu Thiagarajan

    (Northwestern University)

Abstract

We conduct three sets of analyses to compare the usefulness of net income, based on generally accepted accounting principals (GAAP), and the industry-advanced funds from operations (FFO) in the context of the real estate investment trust (REIT) industry. In our first set of tests, we find that FFO is more strongly associated with one-year ahead FFO and one-year ahead operating cash flows than is net income. Conversely, we find that net income explains more variation in one-year ahead net income and current stock price than does FFO. Second, in support of the claim that some REITs manipulate FFO, we document that young REITs and REITs that are likely to access capital markets are more likely to manage FFO. Third, we find that, for a sample of firms that disclose current value information, both net income and FFO fail to reflect holding gains or losses on unsold properties in a timely manner. Overall, our analyses suggest that the REIT industry's claim that FFO is more useful than net income is premature because the superiority of one measure over the other is highly contextual.

Suggested Citation

  • Thomas D. Fields & Srinivasan Rangan & S. Ramu Thiagarajan, 1998. "An Empirical Evaluation of the Usefulness of Non-GAAP Accounting Measures in the Real Estate Investment Trust Industry," Review of Accounting Studies, Springer, vol. 3(1), pages 103-130, March.
    • Handle: RePEc:spr:reaccs:v:3:y:1998:i:1:d:10.1023_a:1009680401226
    DOI: 10.1023/A:1009680401226
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1023/A:1009680401226
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1023/A:1009680401226?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Easton, Peter D. & Harris, Trevor S. & Ohlson, James A., 1992. "Aggregate accounting earnings can explain most of security returns : The case of long return intervals," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 119-142, August.
    2. Patricia M. Dechow & Richard G. Sloan & Amy P. Sweeney, 1996. "Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC," Contemporary Accounting Research, John Wiley & Sons, vol. 13(1), pages 1-36, March.
    3. Frees, Edward W., 1995. "Assessing cross-sectional correlation in panel data," Journal of Econometrics, Elsevier, vol. 69(2), pages 393-414, October.
    4. Lipe, Rc, 1986. "The Information Contained In The Components Of Earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 24, pages 37-64.
    5. James Heckman, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    6. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    7. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
    8. Christie, Andrew A., 1987. "On cross-sectional analysis in accounting research," Journal of Accounting and Economics, Elsevier, vol. 9(3), pages 231-258, December.
    9. Barth, ME & Clinch, G, 1998. "Revalued financial, tangible, and intangible assets: Associations with share prices and non-market-based value estimates," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 36, pages 199-233.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Amir Ziv, 1998. "Discussion of “Earnings Management and the RevelationPrinciple”," Review of Accounting Studies, Springer, vol. 3(1), pages 35-40, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Harris, Mary S. & Muller III, Karl A., 1999. "The market valuation of IAS versus US-GAAP accounting measures using Form 20-F reconciliations1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 285-312, January.
    2. Igor Goncharov & Allan Hodgson, 2008. "Comprehensive Income In Europe: Valuation, Prediction And Conservative Issues," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(10), pages 1-1.
    3. Pascal Dumontier & Real Labelle, 1998. "Accounting earnings and firm valuation: the French case," European Accounting Review, Taylor & Francis Journals, vol. 7(2), pages 163-183.
    4. Wessel M. Badenhorst & Leon M. Brümmer & Johannes H.vH. de Wet, 2016. "Retracted: The Value‐relevance of Equity Accounted Carrying Amounts and Disclosed Fair Values of Listed Associates," Australian Accounting Review, CPA Australia, vol. 26(2), pages 177-189, June.
    5. Doron Israeli, 2015. "Recognition versus disclosure: evidence from fair value of investment property," Review of Accounting Studies, Springer, vol. 20(4), pages 1457-1503, December.
    6. Shadi Farshadfar & Reza Monem, 2013. "The usefulness of operating cash flow and accrual components in improving the predictive ability of earnings: a re-examination and extension," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(4), pages 1061-1082, December.
    7. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    8. Tony Abrahams & Baljit K. Sidhu, 1998. "The Role of R&D Capitalisations in Firm Valuation and Perfor Mance Measurement," Australian Journal of Management, Australian School of Business, vol. 23(2), pages 169-183, December.
    9. 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 Limited, vol. 9(3), pages 264-284, August.
    10. Tami Dinh Thi & Wolfgang Schultze, 2011. "Capitalizing research & development and ‘other information’: the incremental information content of accruals versus cash flows," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 22(3), pages 241-278, November.
    11. Hadri Kusuma, 2014. "The Incremental Information Content of the Cash Flow Statement: An Australian Empirical Investigation," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 5(4), pages 90-102, July.
    12. C.S. Agnes Cheng & Simon S.M. Yang, 2003. "The Incremental Information Content of Earnings and Cash Flows from Operations Affected by Their Extremity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(1‐2), pages 73-116, January.
    13. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
    14. Irena Jindrichovska, 2001. "The relationship between accounting numbers and returns: some empirical evidence from the emerging market of the Czech Republic," European Accounting Review, Taylor & Francis Journals, vol. 10(1), pages 107-131.
    15. Badenhorst, Wessel M. & Brümmer, Leon M. & de Wet, Johannes H.vH., 2015. "The value-relevance of disclosed summarised financial information of listed associates," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 24(C), pages 1-12.
    16. Anup Srivastava, 2014. "Selling-price estimates in revenue recognition and the usefulness of financial statements," Review of Accounting Studies, Springer, vol. 19(2), pages 661-697, June.
    17. Dennis Chambers & Ross Jennings & Robert B. Thompson, 1999. "Evidence on the Usefulness of Capital Expenditures as an Alternative Measure of Depreciation," Review of Accounting Studies, Springer, vol. 4(3), pages 169-195, December.
    18. Dimitropoulos, Panagiotis E. & Asteriou, Dimitrios & Kousenidis, Dimitrios & Leventis, Stergios, 2013. "The impact of IFRS on accounting quality: Evidence from Greece," Advances in accounting, Elsevier, vol. 29(1), pages 108-123.
    19. Cormier, Denis & Martinez, Isabelle, 2006. "The association between management earnings forecasts, earnings management, and stock market valuation: Evidence from French IPOs," The International Journal of Accounting, Elsevier, vol. 41(3), pages 209-236.
    20. Elmar R. Venter & David Emanuel & Steven F. Cahan, 2014. "The Value Relevance of Mandatory Non-GAAP Earnings," Abacus, Accounting Foundation, University of Sydney, vol. 50(1), pages 1-24, March.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:3:y:1998:i:1:d:10.1023_a:1009680401226. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.