Comparing the Value Relevance of Two Operating Income Measures

Lawrence D. Brown and Kumar Sivakumar ()
Additional contact information
Lawrence D. Brown: Georgia State University
Kumar Sivakumar: Boston University

Review of Accounting Studies, 2003, vol. 8, issue 4, No 6, 572 pages

Abstract: Abstract Prior research has shown that pro-forma (recurring operating) earnings reported by managers and analysts are more value relevant than GAAP net income. Since GAAP net income contains many non-operating items that reduce its value relevance compared to operating earnings, comparing the value relevance of GAAP net income with operating earnings unduly favors operating earnings. We show that operating earnings reported by managers and analysts are more value relevant than a measure of operating earnings derived from firms' financial statements, as reported by Standard and Poor's. Our evidence is important because it indicates that operating earnings reported by managers and analysts contain value relevant information beyond that provided by operating earnings obtained by sophisticated users from firms' financial statements.

Keywords: operating income; pro-forma earnings; value relevance; predictive ability; valuation; information content (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1023/A:1027328418571 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:8:y:2003:i:4:d:10.1023_a:1027328418571

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1023/A:1027328418571

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().