Abstract
Prior research documents that analysts’ non-Generally Accepted Accounting Principles (non-GAAP) or “street earnings” exclude transitory items in order to facilitate security valuation. We study sell-side analysts’ reports for large European banks and find significant variation in analysts’ non-GAAP actual earnings measures. These measures are not always easily reconcilable to firms’ reported non-GAAP earnings, to GAAP earnings or to non-GAAP earnings reported by Institutional Brokers Estimate System (I/B/E/S). By contrast, reported measures of GAAP earnings in analysts’ reports differ from one another (or from firms’ reported GAAP earnings) far less often. When evaluated against analysts’ own actual non-GAAP earnings measures, forecasts appear more accurate than those based on I/B/E/S actuals. Results for GAAP earnings are less conclusive. Our results indicate that as well as disagreeing about future earnings, analysts also disagree significantly about what earnings were in the past.
| Original language | English |
|---|---|
| Pages (from-to) | 588-624 |
| Number of pages | 37 |
| Journal | Journal of Business Finance and Accounting |
| Volume | 49 |
| Issue number | 3-4 |
| Early online date | 3 Jan 2022 |
| DOIs | |
| Publication status | E-pub ahead of print - 3 Jan 2022 |
Bibliographical note
Funding Information:We thank the editor (Nerissa Brown), Patrick Ryu (discussant), an anonymous reviewer, Pawel Bilinski, Ted Christensen, Stephen Cooper, Stephannie Larocque, Edward Lee, Tim Martens, Nikos Tsileponis, Ben Whipple and participants at the 2021 JBFA Capital Markets Conference, Universidad Carlos III de Madrid and the Bayes Business School/University of Bristol PhD Conference for helpful comments. All remaining errors are our own.
Publisher Copyright:
© 2022 John Wiley & Sons Ltd.
Research Groups and Themes
- AF Financial Reporting
Keywords
- Analysts’ forecasts
- banks
- non-GAAP earnings