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Evidence on the Usefulness of Alternative Earnings per Share Measures

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  • Ross Jennings
  • Marc J. LeClere
  • Robert B. Thompson

Abstract

In February 1997, the Financial Accounting Standards Board adopted new reporting rules for earnings per share. The new standard replaces “primary” EPS with “basic” EPS and makes a minor adjustment in the computation of “fully diluted” EPS. A comparison of the extent to which basic, primary, and fully diluted EPS explain variation in stock prices for a large sample of NYSE- and Amex-listed firms from 1989 to 1995 suggests that analysts and investors are likely to be no worse off under the new standard than under the old and may, in fact, have access to better information under the new standard because of its enhanced disclosure requirements.

Suggested Citation

  • Ross Jennings & Marc J. LeClere & Robert B. Thompson, 1997. "Evidence on the Usefulness of Alternative Earnings per Share Measures," Financial Analysts Journal, Taylor & Francis Journals, vol. 53(6), pages 24-33, November.
    • Handle: RePEc:taf:ufajxx:v:53:y:1997:i:6:p:24-33
    DOI: 10.2469/faj.v53.n6.2127
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