Signaling firm performance through financial statement presentation
Subtitle: an analysis using special items
By: Edward J. Riedl and Suraj Srinivasan
Contributors: Srinivasan, Suraj; Harvard Business School
Series: Working paper / Harvard Business School -- 09-031; Working paper (Harvard Business School) -- 09-031
Publisher: Harvard Business School
Published: 2008
Place of publication: Boston
Language: eng
Number of pages: 51
Description: This paper investigates whether presentation of special items within the financial statements reflects the firm's underlying economic performance or opportunism. We examine the presentation of recognized special items either as a separate line item on the income statement or aggregated within another line item with disclosure only in the footnotes. Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers' presentation choices in other contexts. Using different constructs of persistence to capture the economics of reported special items, we find evidence consistent across a range of specifications that special items highlighted on the income statement are more transitory than those revealed only in the footnotes. For most special items, these results are consistent with this presentation decision reflecting underlying firm performance. For a subset observations - namely, those likely to reflect "big bath" reporting incentives - we provide limited evidence suggestive of opportunism in this presentation decision.
Notes: "September 2008"--Publisher's web site.

Includes bibliographical references.