The role of reconciliation quality in limiting mispricing of non-GAAP earnings announcements by EURO STOXX firms

François Aubert and Gary Grudnitski

Advances in accounting, 2014, vol. 30, issue 1, 154-167

Abstract: This empirical study investigates the relationship between the market mispricing of pro forma earnings announcements and the degree to which pro forma earnings are quantitatively reconciled with GAAP (Generally Accepted Accounting Principles) earnings. For a sample of EURO STOXX Fixed Index companies we find evidence of positive abnormal returns related to pro forma earnings disclosures, and, upon further analyses, conclude that this evidence is generally more consistent with the notion of market mispricing than omitted risk factors. Moreover, when reconciliation quality is controlled, market mispricing is found to be prevalent and pronounced only for low quality reconciliations. This finding suggests that reconciliation is important in reducing market mispricing.

Keywords: Pro forma earnings; Reconciliations; Mispricing; Analyst earnings forecasts; Street earnings; Investor interests (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:30:y:2014:i:1:p:154-167

DOI: 10.1016/j.adiac.2014.03.008

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