Review of Accounting Studies

, Volume 16, Issue 3, pp 501–527

Do managers use earnings guidance to influence street earnings exclusions?

  • Theodore E. Christensen
  • Kenneth J. Merkley
  • Jennifer Wu Tucker
  • Shankar Venkataraman

DOI: 10.1007/s11142-011-9158-3

Cite this article as:
Christensen, T.E., Merkley, K.J., Tucker, J.W. et al. Rev Account Stud (2011) 16: 501. doi:10.1007/s11142-011-9158-3


Despite the apparent importance of “street earnings” to investors, we know relatively little about the process through which this earnings metric is determined. The limited evidence in the extant literature provides analyst-centric explanations, suggesting that analysts’ abilities and incentives influence which line items forecast-tracking services exclude from GAAP earnings to arrive at street earnings. We propose an alternative explanation: managers actively influence analysts’ forecast exclusion decisions via earnings guidance. We test this explanation by examining how earnings guidance influences two aspects of analysts’ exclusions: (1) special item exclusions (i.e., nonrecurring items) and (2) incremental exclusions (i.e., recurring items). We find that for firms with no special items in the previous year, when managers guide, analysts exclude almost all current-year special items, whereas when managers do not guide, the proportion that analysts exclude is significantly lower. More importantly, we that analysts’ incremental exclusions are significantly higher when managers guide than when they do not guide. Overall, our evidence suggests that managers play an active role in influencing the composition of street earnings via earnings guidance.


Street earningsEarnings guidanceSpecial itemsPro forma guidance

JEL Classification


Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  • Theodore E. Christensen
    • 1
  • Kenneth J. Merkley
    • 2
  • Jennifer Wu Tucker
    • 3
  • Shankar Venkataraman
    • 4
  1. 1.Marriott School of ManagementBrigham Young UniversityProvoUSA
  2. 2.Johnson Graduate School of ManagementCornell UniversityIthacaUSA
  3. 3.Fisher School of AccountingUniversity of FloridaGainesvilleUS
  4. 4.College of ManagementGeorgia Institute of TechnologyAtlantaUSA