Disagreement over the persistence of earnings components: evidence on the properties of management-specific adjustments to GAAP earnings

Young-Soo Choi, Stephen Lin, Martin Walker, Steven Young

Review of Accounting Studies · 2007 · Volume 12 · Issue 4

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.

Keywords

Non-GAAP earnings, Transitory items, Disagreement

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