Signaling Firm Performance Through Financial Statement Presentation: An Analysis Using Special Items

Edward J. Riedl () and Suraj Srinivasan ()
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Edward J. Riedl: Harvard Business School, Accounting and Management Unit
Suraj Srinivasan: Harvard Business School, Accounting and Management Unit

No 09-031, Harvard Business School Working Papers from Harvard Business School

Abstract: This paper investigates whether presentation of special items within the financial statements reflects the firm's underlying economic performance or opportunism. We examine the presentation of recognized special items either as a separate line item on the income statement or aggregated within another line item with disclosure only in the footnotes. Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers' presentation choices in other contexts. Using different constructs of persistence to capture the economics of reported special items, we find evidence consistent across a range of specifications that special items highlighted on the income statement are more transitory than those revealed only in the footnotes. For most special items, these results are consistent with this presentation decision reflecting underlying firm performance. For a subset observations - namely, those likely to reflect "big bath" reporting incentives - we provide limited evidence suggestive of opportunism in this presentation decision.

Keywords: special items; strategic reporting; presentation; voluntary disclosure; pro forma (search for similar items in EconPapers)
Pages: 51 pages
Date: 2007-10
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:09-031

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