The Timing of Quarterly 'Pro Forma' Earnings Announcements

Journal of Business Finance & Accounting 39 (3/4): 315-359

AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Papers

50 Pages Posted: 18 Sep 2006 Last revised: 4 Jun 2015

See all articles by Nerissa C. Brown

Nerissa C. Brown

University of Illinois at Urbana-Champaign

Theodore E. Christensen

University of Georgia; University of Georgia - J.M. Tull School of Accounting

W. Brooke Elliott

University of Illinois at Urbana-Champaign

Date Written: December 2, 2011

Abstract

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.

Keywords: Earnings announcement timing, Pro forma earnings, Adjusted earnings

JEL Classification: G14, M40, M41

Suggested Citation

Brown, Nerissa C. and Christensen, Theodore E. and Christensen, Theodore E. and Elliott, W. Brooke, The Timing of Quarterly 'Pro Forma' Earnings Announcements (December 2, 2011). Journal of Business Finance & Accounting 39 (3/4): 315-359, AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Papers, Available at SSRN: https://ssrn.com/abstract=931103

Nerissa C. Brown

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Theodore E. Christensen (Contact Author)

University of Georgia ( email )

Athens, GA
United States

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

W. Brooke Elliott

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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