This study examines whether the market misprices core earnings (operating income before depreciation and special items) when firms use income classification shifting tactics to boost their core earnings. We find that the market's expectation of core earnings' persistence is higher than the actual reported earnings persistence of firms that have shifted their core earnings. We also find that core earnings are more negatively associated with future returns for shifters than for non-shifters. Overall, we find strong evidence that the market overprices shifters' core earnings. These results are robust to controlling for earnings management and real earnings management, endogeneity and self-selection, and using alternative measures of classification shifting. Our findings are timely given the Securities and Exchange Commission's recent concerns of firms' income classification shifting behavior.

Under SFAS No. 131, a company is required to provide a reconciliation of the total of the reportable segments profit or loss to the firms consolidated income. This paper investigates these segment disclosures and related determinants of managers segment financial reporting choices. We focus on managers decisions to report segment-to-firm level reconciliations (i.e., segment reconciliations (SERs)) differences between firm-level and aggregated segment-level earnings. On average, we find that SERs are significant when the differences are not equal to zero. Firms with higher agency costs and greater accruals are less likely to report segment reconciliations. However, firms that have a greater number of segments, larger firms, and firms with higher leverage, losses, and greater earnings volatility are more likely to report SER?0. Consistent with managers having some segment reporting discretion, our overall findings suggest a managers segment reporting choice is partly driven by agency costs. Interestingly, among firms with reported segment reconciliations, firms with higher agency costs are more likely to report positive SERs. Consequently, this study documents a relation between proxies for agency costs and managers decisions to report segment reconciliations. Policy implications and suggestions for future research are discussed in the paper.

Social network connections of corporations can significantly affect operating performance and firm valuation. Political connections are one form of social networking which often manifests into improved firm profitability as a result of political favors granted by politicians. However, analysts often have greater difficulty forecasting the earnings of politically connected firms than those of non‐connected firms. This is because politicians often grant political favors to firms in an unpredictable manner making it difficult for market participants to time precisely when political benefits will translate into higher firm profitability. I examine how political connections affect analysts’ stock recommendations using a unique dataset of political contributions in the US over the period 1993–2012. I show that analysts’ recommendations are less profitable for firms with high connectedness than for firms with low (or no) connectedness. I also find that analysts are less effective in translating earnings forecasts into profitable recommendations for highly connected firms. Overall, the findings suggest that analysts do not impound all of the information concerning corporate political connections efficiently into their primary research outputs.

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SYNOPSIS We examine whether analysts who use more favorable language during earnings conference calls subsequently issue more accurate earnings forecasts. Using a large sample of earnings conference calls from the 2004–2013 period for S&P 500 firms, we find a significantly positive relation between an analyst's tone during a firm's call and the accuracy of the analyst's next quarterly earnings forecast for that firm. We find a similar relation for analysts who praise a firm's management during the call. Our findings are consistent with the favorableness of an analyst's language reflecting their access to a firm's management. In additional analyses, we find that female analysts, analysts with less general experience, analysts at smaller brokerage firms, and analysts who cover more industries, on average, use significantly more favorable language during earnings conference calls. Overall, we contribute a new proxy, incremental to other proxies, for the analyst-manager relationship.

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