This dissertation presents two studies on the value relevance and perceived credibility of pro forma earnings. In the first study, I investigate the value relevance of pro forma earnings relative to two alternative earnings measures GAAP earnings and analysts actual earnings. Value relevance is assessed using two approaches. The first approach examines whether the markets expectations (contemporaneous returns or price) is best reflected in future pro forma earnings, future GAAP earnings, or future analysts actual earnings. The second approach is to determine through pair-wise comparisons of the three earnings measures (e.g., pro forma earnings versus GAAP earnings), which has the greatest explanatory power (comparing adjusted R2s) in explaining price and returns. Across approaches and models, each of the three earnings measures tends to be value relevant. However, Pro forma is consistently the most value relevant, followed by analysts actuals, with GAAP earnings having the least value relevance. That is, pro forma earnings have the greatest information content. This finding is consistent with managers, in aggregate, using pro forma to inform rather than to manage expectations or to mislead. <p>In the second study, I examine the impact of credibility attributes board characteristics, auditor quality and overall information quality on the value relevance of pro forma earnings. It is hypothesized that the credibility attributes will have a statistically significant impact on investors reaction to pro forma earnings. Consistent with the predictions, I find that stronger board characteristics, higher auditor quality and higher overall information quality are positively associated with higher market reaction to the pro forma announcement. That is, credibility attributes increase the value relevance of pro forma earnings. This finding is consistent with some firms providing pro forma earnings that are perceived to be credible and others providing pro formas that are perceived as less credible and possibly provided to manage expectations or to mislead.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:SSU.etd-09102007-125536 |
| Date | 11 September 2007 |
| Creators | Mbagwu, Chima I |
| Contributors | Vaidyanathan, Ganesh, Isaac, Grant E., Fulton, Murray E., Feltham, Glenn, Entwistle, Gary |
| Publisher | University of Saskatchewan |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://library.usask.ca/theses/available/etd-09102007-125536/ |
| Rights | unrestricted, I hereby certify that, if appropriate, I have obtained and attached hereto a written permission statement from the owner(s) of each third party copyrighted matter to be included in my thesis, dissertation, or project report, allowing distribution as specified below. I certify that the version I submitted is the same as that approved by my advisory committee. I hereby grant to University of Saskatchewan or its agents the non-exclusive license to archive and make accessible, under the conditions specified below, my thesis, dissertation, or project report in whole or in part in all forms of media, now or hereafter known. I retain all other ownership rights to the copyright of the thesis, dissertation or project report. I also retain the right to use in future works (such as articles or books) all or part of this thesis, dissertation, or project report. |
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