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Signaling Firm Performance Through Financial Statement Presentation: An Analysis Using Special Items
Author(s) -
RIEDL EDWARD J.,
SRINIVASAN SURAJ
Publication year - 2010
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/j.1911-3846.2010.01010_8.x
Subject(s) - presentation (obstetrics) , statement (logic) , financial statement analysis , income statement , financial statement , accounting , statement of changes in financial position , earnings , pro forma , opportunism , actuarial science , psychology , business , financial analysis , financial accounting , economics , balance sheet , political science , accounting information system , law , medicine , audit , radiology , market economy
This paper investigates whether managers’ presentation of special items within the financial statements reflects economic performance or opportunism. Specifically, we assess special items presented as a separate line item on the income statement (income statement presentation) to those aggregated within another line item with disclosure only in the footnotes (footnote presentation). 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. Empirical results reveal that special items receiving income statement presentation are less persistent relative to those receiving footnote presentation. These results are consistent across numerous alternative specifications. Overall, the findings are consistent with managers using the income statement versus footnote presentation to assist users in identifying those special items most likely to differ from other components of earnings — that is, for informational, as opposed to opportunistic, motivations.