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Analysts’ GAAP earnings forecasts and their implications for accounting research

Author

Listed:
  • Bradshaw, Mark T.
  • Christensen, Theodore E.
  • Gee, Kurt H.
  • Whipple, Benjamin C.

Abstract

We use newly available GAAP forecasts to document that traditionally-identified GAAP forecast errors contain 37% measurement error. Correcting for this measurement error, we settle a long-standing debate regarding investor preference for GAAP versus non-GAAP earnings and provide strong evidence of a preference for non-GAAP earnings. We also revisit the use of non-GAAP exclusions to meet analysts’ forecasts when GAAP earnings fall short. Results indicate that 34% of these traditionally-identified meet-or-beat firms are misidentified due to measurement error, and this error masks evidence that firms more frequently exclude transitory rather than recurring expenses for meet-or-beat purposes.

Suggested Citation

  • Bradshaw, Mark T. & Christensen, Theodore E. & Gee, Kurt H. & Whipple, Benjamin C., 2018. "Analysts’ GAAP earnings forecasts and their implications for accounting research," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 46-66.
    • Handle: RePEc:eee:jaecon:v:66:y:2018:i:1:p:46-66
    DOI: 10.1016/j.jacceco.2018.01.003
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    More about this item

    Keywords

    Measurement error; Earnings expectations; Analysts’ forecasts; GAAP forecasts; Non-GAAP earnings; Street earnings; Earnings surprise; Meet-or-beat;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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