Abstract
This study examines the main problem raised by pro forma earnings (or “street” earnings) because investors may have trouble focusing their attention when they are relying on this information to make decisions about investing in French publicly traded securities. This article, based on 116 pro forma earning announcements over the period 1996-2006, aims first at examining why French traded corporations use pro forma reporting in their annual press releases to announce earnings. Interestingly, I find that managers do use pro forma earning measures strategically to report better corporate performance than those based on GAAP earnings metrics. In 79% of the cases I identified, pro forma numbers are higher than GAAP ones, suggesting that managers have significant motives to report a higher profit than the GAAP-based one and the one forecasted by analysts would be. Furthermore, about 82% of pro forma announcements should have disclosed bad news that would have been revealed by releasing GAAP earnings. Finally, I show that those pro forma numbers are much more informative than GAAP earnings.
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