The Roles of Data Providers and Analysts in the Production, Dissemination, and Pricing of Street Earnings

Abstract

Street earnings are non-GAAP earnings, adjusted for consistency with the analyst majority basis and disseminated by forecast data providers (FDPs). We find that the time it takes an FDP to incorporate street earnings in its products (activation delay, hereafter) reflects variation in the difficulty of constructing street earnings, investor demand for timely street earnings, and FDPs' limited attention and resources. Furthermore, the market reaction to reported earnings is more timely when activation delay is shorter, and price discovery is highly concentrated during the hour after street earnings are activated. Finally, activation delay increases the delay with which street earnings are incorporated in analyst forecasts. We conclude that frictions in information processing prevent market participants from instantaneously constructing and incorporating street earnings in their decisions, and that FDPs play a key role in alleviating these frictions.

Non-GAAP reporting following debt covenant violations

“…Moreover, Brown et al (2018) investigate the extent to which non-GAAP reporting influences IPO pricing. Finally, a growing stream of research investigates factors influencing the determination of analysts' street earnings, the metric most frequently used by investors in valuing firms (Bratten et al 2018;Black et al 2017;Brochlay et al 2018).…”