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

  • Andersson, Patric


    (Center for Economic Psychology)

  • Hellman, Niclas


    (Department of Accounting and Managerial Finance)

Registered author(s):

    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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    Paper provided by Stockholm School of Economics in its series SSE/EFI 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
    Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, SE 113 83 Stockholm, Sweden
    Phone: +46-(0)8-736 90 00
    Fax: +46-(0)8-31 01 57
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    1. Mark T. Bradshaw, 2002. "GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 41-66, 03.
    2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    3. 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.
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