Analysts’ GAAP earnings forecasts and their implications for accounting research

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

doi:10.1016/j.jacceco.2018.01.003

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Journal of Accounting and Economics Vol. 66 No. 1 2018

Analysts’ GAAP earnings forecasts and their implications for accounting research

Mark T. Bradshaw¹; Theodore E. Christensen²; Kurt H. Gee³; Benjamin C. Whipple²

¹ Boston College · ² University of Georgia · ³ Stanford University

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.

DOI: 10.1016/j.jacceco.2018.01.003
Volume: 66
Issue: 1
Pages: 46-66
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Analysts’ GAAP earnings forecasts and their implications for accounting research

Abstract

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