The Timing of Quarterly ‘Pro Forma’ Earnings Announcements

Nerissa C. Brown · Theodore E. Christensen

61 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Corporate Governance and Financial Management Financial Reporting and XBRL

Abstract

Abstract: While some prior studies suggest that the timing of earnings announcements may reflect management's attempt to better inform investors, other studies suggest that managers opportunistically time their earnings releases in an effort to alter investors’ perceptions of firm performance. However, there is limited empirical evidence on the relation between earnings announcement timing and the manipulation of reported earnings. We extend this research by examining the timing of quarterly earnings announcements that contain an adjusted (‘pro forma’) earnings measure and whether managers’ behavior is more consistent with opportunistic or information‐related motives. We find that, on average, managers accelerate the timing of earnings announcements in quarters in which they disclose an adjusted earnings metric within the earnings press release relative to quarters in which they do not. In addition, we find that the acceleration of the earnings announcement increases with the level of managers’ exclusions of recurring expenses and their use of less transparent reconciliation formats. Consistent with managerial opportunism, we find that the recurring item exclusions used to calculate pro forma earnings in accelerated earnings announcements are of relatively lower quality and are more predictive of lower future earnings. We also find that investors fail to fully unravel the low‐quality nature of the recurring item exclusions used to calculate pro forma earnings in these accelerated announcements and that this failure is attenuated by managers’ use of less transparent reconciliation formats. Taken together, our results suggest that the acceleration of pro forma earnings news is at least partially attributable to managerial opportunism.

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References

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2018Policy Implications of Research on Non-GAAP Reporting 2015The informativeness of pro forma and street earnings: an examination of information asymmetry around earnings announcements 2019Short Selling and Firms' Disclosure of Bad News: Evidence from Regulation SHO 2021Can short sellers constrain aggressive non-GAAP reporting?2013The Differential Value Relevance of S&P's Core Earnings Versus GAAP Earnings: The Role of Stock Option Expense 2019

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