Disagreement over the persistence of earnings components: evidence on the properties of management-specific adjustments to GAAP earnings |
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| Authors: | Young-Soo Choi Stephen Lin Martin Walker Steven Young |
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| Institution: | (1) Department of Accounting & Finance, Lancaster University Management School, Lancaster University, Lancaster, LA1 4YX, UK;(2) School of Accounting, College of Business Administration, Florida International University, 11200 SW 8th Street, University Park, Miami, FL 33199, USA;(3) Manchester Accounting and Finance Group, Manchester Business School, University of Manchester, Manchester, M13 9PL, UK |
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| Abstract: | We examine disagreement between management and Thomson Datastream over the persistence of earnings components. Using income
statement and footnote disclosures, we identify the source and properties of disputed items. Disagreements typically reflect
opaque reporting practices (for example, in the case of transitory operating items) and restrictive classification rules (for
example, in the case of discontinued operations). Incremental and relative value relevance tests suggest that the majority
of management-specific adjustments reflect appropriate classification of earnings components by insiders. Nevertheless, evidence
consistent with strategic disclosure does emerge for a subset of management adjustments.
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| Keywords: | Non-GAAP earnings Transitory items Disagreement |
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