Review of Accounting Studies

, Volume 8, Issue 4, pp 561–572

Comparing the Value Relevance of Two Operating Income Measures

  • Lawrence D. Brown
  • Kumar Sivakumar
Article

Abstract

Prior research has shown that pro-forma (recurring operating) earnings reported by managers and analysts are more value relevant than GAAP net income. Since GAAP net income contains many non-operating items that reduce its value relevance compared to operating earnings, comparing the value relevance of GAAP net income with operating earnings unduly favors operating earnings. We show that operating earnings reported by managers and analysts are more value relevant than a measure of operating earnings derived from firms' financial statements, as reported by Standard and Poor's. Our evidence is important because it indicates that operating earnings reported by managers and analysts contain value relevant information beyond that provided by operating earnings obtained by sophisticated users from firms' financial statements.

operating income pro-forma earnings value relevance predictive ability valuation information content 

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Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  • Lawrence D. Brown
    • 1
  • Kumar Sivakumar
    • 2
  1. 1.Georgia State UniversityAtlanta
  2. 2.School of ManagementBoston UniversityBoston

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