The Accounting Review Vol. 80 No. 1 2005
Investors' Evaluations of Strategic Prior-Period Benchmark Disclosures in Earnings Announcements
Abstract
Schrand and Walther's (2000) archival evidence suggests that managers strategically disclose prior-period benchmarks in current earnings announcements, which, in turn, influences investors' judgments. Using a controlled experimental setting, I present evidence confirming that a transparent description of a transitory prior-period gain or loss affects how investors apply prior-period earnings when evaluating currentperiod earnings. I also provide evidence that this effect is likely to be unintentional on the part of investors, resulting from limitations in their memory for the prior-period event. Overall, the experimental results suggest that a quantitative description of the transitory prior-period gain or loss in a current earnings announcement helps investors to evaluate company performance. The results also highlight the need for consistency in reporting non-GAAP financial performance measures.
- DOI
- 10.2308/accr.2005.80.1.243
- Volume
- 80
- Issue
- 1
- Pages
- 243-268
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref