Scandinavian Working Papers in Business Administration

SSE/EFI Working Paper Series in Business Administration,
Stockholm School of Economics

No 2004:5: The impact of pro forma profits on analyst forecasts: Some experimental evidence

Patric Andersson () and Niclas Hellman ()
Additional contact information
Patric Andersson: Center for Economic Psychology, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Niclas Hellman: Department of Accounting and Managerial Finance, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: The trend of pro forma (non-GAAP) reporting has made it increasingly difficult for financial analysts and investors to evaluate company performance. This study investigates how pro forma reporting affects analysts’ judgments in a non-US experimental setting. The results show that analysts who received both pro forma and GAAP information made significantly higher EPS forecasts compared to analysts who only received GAAP information. The positive framing and the higher anchor level that the pro forma report creates are suggested explanations for this result.

Keywords: Financial analysts; analyst forecasts; pro forma profits

20 pages, May 28, 2004

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