Are investors influenced by pro forma emphasis and reconciliations in earnings announcements?

Research output: Contribution to journalReview articlepeer-review


This study presents the results of an experiment that examines how two underlying characteristics of pro forma earnings announcements, pro forma emphasis and the presence of a quantitative reconciliation, influence nonprofessional investors' and analysts' reliance on pro forma disclosures. The results indicate that the emphasis management places on pro forma earnings, not the mere presence of pro forma earnings, influences nonprofessional investors' judgments and decisions, but that this influence is mitigated by the presence of a quantitative reconciliation. Further analysis reveals that the influence of pro forma emphasis on nonprofessional investors' judgments and decisions seems to be the result of an unintentional cognitive effect as opposed to the perceived informativeness of the earnings figure emphasized by management. Analysts' judgments and decisions were also affected by the presence of reconciliation, but in the opposite direction to those of nonprofessional investors. Specifically, the presence of a quantitative reconciliation led analysts to view pro forma earnings as more reliable, increasing their reliance on the pro forma disclosure in judging the earnings performance of the firm.

Original languageEnglish (US)
Pages (from-to)113-133
Number of pages21
JournalAccounting Review
Issue number1
StatePublished - Jan 2006


  • Analysts
  • Nonprofessional investors
  • Pro forma earnings
  • Reconciliations

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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