Emphasis on Pro Forma Versus Gaap Earnings in Quarterly Press Releases: Determinants, Sec Intervention, and Market Reactions

45 Pages Posted: 16 Jun 2003

See all articles by Robert M. Bowen

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

Angela K. Davis

University of Oregon

Dawn A. Matsumoto

University of Washington - Department of Accounting

Date Written: April 2005

Abstract

Earnings press releases provide managers a forum to present their firm's quarterly financial information and perhaps influence perceptions of the firm's stakeholders. We explore the use of managerial emphasis as a disclosure tool and contribute to the debate over pro forma earnings. We examine (1) the determinants of emphasis placed on pro forma and GAAP earnings within quarterly earnings press releases, (2) whether there has been a shift away from emphasizing pro forma earnings toward GAAP earnings, and (3) whether stock market reactions to earnings news were influenced by emphasis placed on metrics within the press release. We find that firms emphasize metrics that are more value-relevant and portray more favorable firm performance. We also find that the extent of a firm's media coverage affects managers' emphasis decisions. Further, our results indicate a highly significant shift toward GAAP emphasis and away from pro forma emphasis in 2002 relative to 2001. Finally, our stock market tests suggest that greater emphasis on an earnings metric results in a stronger market reaction to the surprise in that metric. Overall, these findings are consistent with managers using emphasis in the earnings press release as a disclosure tool and this emphasis influencing at least one important stakeholder group - investors.

Keywords: press release, emphasis, metrics, disclosure, pro forma and GAAP earnings, determinants, stock market reactions

JEL Classification: M41, M45

Suggested Citation

Bowen, Robert M. and Davis, Angela K. and Matsumoto, Dawn, Emphasis on Pro Forma Versus Gaap Earnings in Quarterly Press Releases: Determinants, Sec Intervention, and Market Reactions (April 2005). Available at SSRN: https://ssrn.com/abstract=399980 or http://dx.doi.org/10.2139/ssrn.399980

Robert M. Bowen (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
206.334.0911 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/robert-bowen

University of Washington - Foster School of Business ( email )

Box 353226
University of Washington
Seattle, WA 98195-3226
United States
206.334.0911 (Phone)

HOME PAGE: http://foster.uw.edu/faculty-research/directory/robert-bowen/

Angela K. Davis

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3210 (Phone)

Dawn Matsumoto

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States
206-543-4454 (Phone)
206-685-9392 (Fax)

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