Analysts’ GAAP earnings forecasts and their implications for accounting research

By Mark Bradshaw, Theodore E. Christensen, Kurt H. Gee, Benjamin C. Whipple. Journal of Accounting & Economics, 2018

130 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/19914d25fa4377e22d85776fdbc389d77283bd20