Press Release Disclosure of ‘Pro Forma’ Earnings Metrics by Large German Corporations – Empirical Evidence and Regulatory Recommendations

Hitz, Joerg-Markus

doi:10.1080/17449480.2010.485376

Cited by 29 publications

(19 citation statements)

References 35 publications

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“…1 1 Prior studies examine the disclosure as well as investors’ perceptions of pro forma earnings measures in several international jurisdictions including Canada (Entwistle et al, 2005), France (Aubert, 2010), Germany (Hitz, 2010), Sweden (Andersson and Hellman, 2007), the UK (Choi et al, 2007), and the EU (Isidro and Marques, 2011). …”

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confidence: 99%

The Timing of Quarterly ‘Pro Forma’ Earnings Announcements

Brown

Christensen

Elliott

2012

Business Fin & Account

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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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confidence: 99%

The Timing of Quarterly ‘Pro Forma’ Earnings Announcements

Brown

Christensen

Elliott

2012

Business Fin & Account

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“…). These earnings measures have also been detected in the press releases or annual reports of German (Hitz ), Dutch (Koning et al. ), United Kingdom (UK) (Choi and Young ) and Australian (Harrison and Morton ; Sek and Taylor ; Cameron et al.…”

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confidence: 78%

Future Cash Flow Predictability of Non‐IFRS Earnings: Australian Evidence

Sinnewe

Harrison

Wijeweera

2016

Australian Accounting Review

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The global proliferation of reporting non‐International Financial Reporting Standards (IFRS) (pro forma) earnings has been subject to academic debate and regulatory reform. This study examines whether non‐IFRS earnings contain statistically significant information on future cash flow predictability that could be useful for investors. The study uses data from large Australian listed companies over a six‐year period (2006–11) covering three distinctive periods around the global financial crisis (GFC): pre‐GFC, GFC and post‐GFC. Results based on fixed effects panel estimation methods suggest non‐IFRS earnings do exert a significantly positive impact on future cash flow predictability but only during pre‐crisis and crisis periods.

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“…As management's true motivation cannot be observed though, both motives are hard to disentangle empirically (Entwistle et al, 2006). Furthermore, to stir further regulatory actions -which are currently much stricter in the USA than in Europe (Hitz, 2010) -proof is needed that investors are indeed influenced and thus potentially misled by pro forma earnings information. Whereas archival empirical research on investor reaction (e.g., Bhattacharya et al, 2007) faces the problem of disentangling the effect of pro forma earnings disclosure on investors' decisions from other investment-related effects (Allee et al, 2007), controlled experiments might test this assumed causal relationship under pure conditions.…”

Section: The Example Of Pro Forma Earnings Disclosurementioning

confidence: 99%

“…Pro forma earnings represent performance metrics not calculated in accordance with mandatory accounting standards such as US GAAP or IFRS (Marques, 2010). Modifying the bottom-line number or subtotals of the mandatory income statement (GAAP earnings), firms often voluntarily disclose pro forma earnings such as 'operating income', 'recurring earnings' or 'adjusted EBIT(DA)' in their earnings press releases or quarterly/annual reports (Hitz, 2010). Regarding management's expertise and private information, on the one hand, those performance metrics might supplement GAAP earnings information by providing a more 'sustainable' income number that eliminates non-recurring items (Hitz, 2010).…”

Section: The Example Of Pro Forma Earnings Disclosurementioning

confidence: 99%

“…Modifying the bottom-line number or subtotals of the mandatory income statement (GAAP earnings), firms often voluntarily disclose pro forma earnings such as 'operating income', 'recurring earnings' or 'adjusted EBIT(DA)' in their earnings press releases or quarterly/annual reports (Hitz, 2010). Regarding management's expertise and private information, on the one hand, those performance metrics might supplement GAAP earnings information by providing a more 'sustainable' income number that eliminates non-recurring items (Hitz, 2010). On the other hand managers might strategically use pro forma earnings disclosure to portray a better firm performance.…”

Section: The Example Of Pro Forma Earnings Disclosurementioning

confidence: 99%

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Testing vs. building accounting theory with experimental research: insights from management research

Reimsbach

Hauschild

2015

IJBAF

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With this conceptual paper, we want to raise scholars' awareness of the underused potential of experiments in accounting research. We refer to research taxonomies from the management discipline to explore the role of experimental research in testing and building accounting theory. Although the contribution of laboratory research to testing theory is well acknowledged, we argue that exploratory experimental research efforts also have the potential to build new theory, pointing at the underused potential of experiments in current accounting research. In doing so, we (i) provide a clear understanding of theory building and theory testing in accounting research; (ii) present a guideline for assessing the degree of theory building and theory testing inherent in any (experimental) study. Furthermore, we argue that an inter-study triangulation aligning experimental and archival methodologies will have the potential to produce results that are robust to internal and external validity concerns, thus advancing accounting theory.

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Press Release Disclosure of ‘Pro Forma’ Earnings Metrics by Large German Corporations – Empirical Evidence and Regulatory Recommendations

Cited by 29 publications

References 35 publications

The Timing of Quarterly ‘Pro Forma’ Earnings Announcements

The Timing of Quarterly ‘Pro Forma’ Earnings Announcements

Future Cash Flow Predictability of Non‐IFRS Earnings: Australian Evidence

Testing vs. building accounting theory with experimental research: insights from management research

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