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The Timing of Quarterly ‘Pro Forma’ Earnings Announcements

Authors

  • Nerissa C. Brown,

    1. The authors are respectively from Georgia State University, Brigham Young University and the University of Illinois. They thank Martin Walker (editor), Steven Young (associate editor), an anonymous referee, and conference participants at the 2011 JBFA Capital Markets Conference for valuable insights and suggestions. They also thank Linda Bamber, Neil Bhattacharya, Sarah Bonner, Michael Clement, Mark DeFond, Ben Lansford, Carol Marquardt, Dawn Matsumoto, Rick Mergenthaler, Catherine Schrand, Mark Soliman, Theo Sougiannis, K.R. Subramanyam, Jenny Tucker, Senyo Tse, Eric Yeung, Paul Zarowin, and workshop participants at the University of Münster, FARS Mid-Year Meetings (San Antonio), Conference on Financial Economics and Accounting (New York University), and the AAA Annual Meetings (Anaheim) for helpful comments and suggestions. The authors also thank the following: University of Illinois PhD students for their suggestions: Rachel Birkey, Ling Harris, Walied Keshk, Tao Ma, Seth Muriset, Paula Sanders, I-Ling Wang, Jeff Wang and Hui Zhou. They are grateful to Eben Gregory of Thomson StreetEvents, Bobby Hart of Thomson First Call, and John Newman of Oppenheimer & Co. Inc. for many helpful discussions on earnings announcement timing and pro forma earnings adjustments. They appreciate the valuable research assistance of Kris Allee, Joe Bartlett, Hemanth Basappa, Dirk Black, Bryant Blanchard, Brandon Buhler, Yan Cui, Michael Davis, Leo Ebbert, Jonathan Fife, Josh Gagon, Kirk Gibb, Bryan Graden, Alicia Ingalls, Jalence Isles, Robert Judd, Chad Larson, Jon Liljegren, Melissa Martin, Sam Mautz, Greg Packer, Heidi Prescott, John Prete, Willis Pueblo, Rob Shaw, Jacob Smith, Darcie Streckfuss, Scott Tandberg, Ben Tasker, Jake Thornock, Audra Tyler, Patrick Walsh, Adam Ward, Chris Williams, Devin Williams, and Phillip Wong.
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  • Theodore E. Christensen,

    1. The authors are respectively from Georgia State University, Brigham Young University and the University of Illinois. They thank Martin Walker (editor), Steven Young (associate editor), an anonymous referee, and conference participants at the 2011 JBFA Capital Markets Conference for valuable insights and suggestions. They also thank Linda Bamber, Neil Bhattacharya, Sarah Bonner, Michael Clement, Mark DeFond, Ben Lansford, Carol Marquardt, Dawn Matsumoto, Rick Mergenthaler, Catherine Schrand, Mark Soliman, Theo Sougiannis, K.R. Subramanyam, Jenny Tucker, Senyo Tse, Eric Yeung, Paul Zarowin, and workshop participants at the University of Münster, FARS Mid-Year Meetings (San Antonio), Conference on Financial Economics and Accounting (New York University), and the AAA Annual Meetings (Anaheim) for helpful comments and suggestions. The authors also thank the following: University of Illinois PhD students for their suggestions: Rachel Birkey, Ling Harris, Walied Keshk, Tao Ma, Seth Muriset, Paula Sanders, I-Ling Wang, Jeff Wang and Hui Zhou. They are grateful to Eben Gregory of Thomson StreetEvents, Bobby Hart of Thomson First Call, and John Newman of Oppenheimer & Co. Inc. for many helpful discussions on earnings announcement timing and pro forma earnings adjustments. They appreciate the valuable research assistance of Kris Allee, Joe Bartlett, Hemanth Basappa, Dirk Black, Bryant Blanchard, Brandon Buhler, Yan Cui, Michael Davis, Leo Ebbert, Jonathan Fife, Josh Gagon, Kirk Gibb, Bryan Graden, Alicia Ingalls, Jalence Isles, Robert Judd, Chad Larson, Jon Liljegren, Melissa Martin, Sam Mautz, Greg Packer, Heidi Prescott, John Prete, Willis Pueblo, Rob Shaw, Jacob Smith, Darcie Streckfuss, Scott Tandberg, Ben Tasker, Jake Thornock, Audra Tyler, Patrick Walsh, Adam Ward, Chris Williams, Devin Williams, and Phillip Wong.
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  • W. Brooke Elliott

    Corresponding author
    1. The authors are respectively from Georgia State University, Brigham Young University and the University of Illinois. They thank Martin Walker (editor), Steven Young (associate editor), an anonymous referee, and conference participants at the 2011 JBFA Capital Markets Conference for valuable insights and suggestions. They also thank Linda Bamber, Neil Bhattacharya, Sarah Bonner, Michael Clement, Mark DeFond, Ben Lansford, Carol Marquardt, Dawn Matsumoto, Rick Mergenthaler, Catherine Schrand, Mark Soliman, Theo Sougiannis, K.R. Subramanyam, Jenny Tucker, Senyo Tse, Eric Yeung, Paul Zarowin, and workshop participants at the University of Münster, FARS Mid-Year Meetings (San Antonio), Conference on Financial Economics and Accounting (New York University), and the AAA Annual Meetings (Anaheim) for helpful comments and suggestions. The authors also thank the following: University of Illinois PhD students for their suggestions: Rachel Birkey, Ling Harris, Walied Keshk, Tao Ma, Seth Muriset, Paula Sanders, I-Ling Wang, Jeff Wang and Hui Zhou. They are grateful to Eben Gregory of Thomson StreetEvents, Bobby Hart of Thomson First Call, and John Newman of Oppenheimer & Co. Inc. for many helpful discussions on earnings announcement timing and pro forma earnings adjustments. They appreciate the valuable research assistance of Kris Allee, Joe Bartlett, Hemanth Basappa, Dirk Black, Bryant Blanchard, Brandon Buhler, Yan Cui, Michael Davis, Leo Ebbert, Jonathan Fife, Josh Gagon, Kirk Gibb, Bryan Graden, Alicia Ingalls, Jalence Isles, Robert Judd, Chad Larson, Jon Liljegren, Melissa Martin, Sam Mautz, Greg Packer, Heidi Prescott, John Prete, Willis Pueblo, Rob Shaw, Jacob Smith, Darcie Streckfuss, Scott Tandberg, Ben Tasker, Jake Thornock, Audra Tyler, Patrick Walsh, Adam Ward, Chris Williams, Devin Williams, and Phillip Wong.
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Theodore E. Christensen, School of Accountancy, Marriott School of Management, Brigham Young University, 540 N. Eldon Tanner Building, Provo, UT 84602-3068, USA. e-mail: ted_christensen@byu.edu.

Abstract

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.

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