Analysts’ GAAP earnings forecasts and their implications for accounting research

Mark T. Bradshaw, Theodore E. Christensen, Kurt H. Gee and Benjamin C. Whipple

Journal of Accounting and Economics, 2018, vol. 66, issue 1, 46-66

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.

Keywords: Measurement error; Earnings expectations; Analysts’ forecasts; GAAP forecasts; Non-GAAP earnings; Street earnings; Earnings surprise; Meet-or-beat (search for similar items in EconPapers)
JEL-codes: G14 M40 M41 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:66:y:2018:i:1:p:46-66

DOI: 10.1016/j.jacceco.2018.01.003

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