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

Author

Listed:
  • Andersson, Patric

    (Center for Economic Psychology)

  • Hellman, Niclas

    (Department of Accounting and Managerial Finance)

Abstract

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.

Suggested Citation

  • Andersson, Patric & Hellman, Niclas, 2004. "The impact of pro forma profits on analyst forecasts: Some experimental evidence," SSE/EFI Working Paper Series in Business Administration 2004:5, Stockholm School of Economics.
    • Handle: RePEc:hhb:hastba:2004_005
    as

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    References listed on IDEAS

    as
    1. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    2. Mark T. Bradshaw & Richard G. Sloan, 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, March.
    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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    Cited by:

    1. Andersson, Patric, 2004. "How well do financial experts perform? A review of empirical research on performance of analysts, day-traders, forecasters, fund managers, investors, and stockbrokers," SSE/EFI Working Paper Series in Business Administration 2004:9, Stockholm School of Economics.

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    More about this item

    Keywords

    Financial analysts; analyst forecasts; pro forma profits;
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