Another Look at Gaap Versus the Street: An Empirical Assessment of Measurement Error Bias

47 Pages Posted: 8 Oct 2008

See all articles by Daniel A. Cohen

Daniel A. Cohen

Vanderbilt University - Owen Graduate School of Management

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Maria Ogneva

University of Southern California - Marshall School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: November 2006

Abstract

Bradshaw and Sloan (2002) document a significant increase in the difference between the earnings response coefficients (ERCs) for GAAP and Street (I/B/E/S) earnings over the 1990s, suggesting that the market has become increasingly reliant or fixated on Street earnings. In this study we investigate whether, alternatively, an errors in variables problem caused by a mismatch between the definitions of realized and expected earnings drives the ERC divergence. Our findings suggest that results from conventional analyses of GAAP and Street ERCs, including the ERC divergence pattern, are significantly contaminated by measurement errors in earnings surprises.

Keywords: capital markets, analyst forecasts, earnings response coefficients, GAAP earnings, Street earnings, measurement error

Suggested Citation

Cohen, Daniel A. and Hann, Rebecca N. and Ogneva, Maria, Another Look at Gaap Versus the Street: An Empirical Assessment of Measurement Error Bias (November 2006). NYU Working Paper No. 2451/27559, Available at SSRN: https://ssrn.com/abstract=1280722

Daniel A. Cohen (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Maria Ogneva

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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