Analysis Of Bradshaw And Sloan 's An Efficient Corporate Financial Reporting
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In Bradshaw and Sloan’s (2002) article, there are several evidences show that market participants like analysts, investors and managers are stressing on the Street earnings. Street earnings is favoured by the majority because it provides additional useful and relevant information and makes the firm look better since it generates higher value. GAAP (Generally Accepted Accounting Principles) earnings is the traditional measurement based on regulations and it is not relevant in predicting future cash flows. Examples of earnings in the wild market are Street earnings and non-GAAP earnings. Following the trends of using non-GAAP earnings, it is a good way to let the free market to create an efficient corporate financial reporting even there are…show more content… Moreover, information in the free market is meaningful which enhances investors’ understandability of the market thus creates an efficient financial reporting. Trading accounting information as a commodity, the most common incentive of free market reporting is to offer information which assists the investors to evaluate the firms’ operating earnings (Asher, Sarah and Benjamin, 2011). Finally, the free market possess a great magnitude of information. Even if the disclosures in a free market is voluntary, it contains a large scope of information which benefits the decision makers. Lang and Lundholm (1996) indicated that companies with supplementary information disclosures predict future earnings more accurately. Under the non-GAAP metrics in free market, another benefit is high relevance of information. In the unregulated environment, the value of information is more relevant as price and earnings are highly related (Albring et al. 2010). Even though the analysts failed to predict the occurrence of global financial crisis (GFC), the quick spread of bad events offers valuable information to the users and enables the participants to anticipate future risks which helps the vulnerable market recover in a high speed (Wilson, 2011).
Take street earnings as an example, the advantages are accuracy, timeliness and insight.