Investor sentiment and pro forma earnings disclosures

Nerissa C. Brown, Theodore E. Christensen, W. Brooke Elliott, Richard D. Mergenthaler

Research output: Contribution to journalArticlepeer-review


We examine the influence of investor sentiment on managers' discretionary disclosure of "pro forma" (adjusted) earnings metrics in earnings press releases. We find that managers' propensity to disclose an adjusted earnings metric (especially one that exceeds the GAAP earnings number) increases with the level of investor sentiment. Furthermore, our analyses suggest that, as investor sentiment increases, managers: (1) exclude higher levels of both recurring and nonrecurring expenses in calculating the pro forma earnings number and (2) emphasize the pro forma figure by placing it more prominently within the earnings press release. Additional analyses indicate that the association between investor sentiment and managers' pro forma disclosure decisions at least partly reflects opportunistic motives. Finally, we find that managers' own sentiment-driven expectations also play a role in their pro forma disclosure decisions.

Original languageEnglish (US)
Pages (from-to)1-40
Number of pages40
JournalJournal of Accounting Research
Issue number1
StatePublished - Mar 2012

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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