An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ana Stoyanova Vidolovska
London Business School

Abstract: I examine analysts’ efficiency in using non-GAAP performance indicators for forecasting EPS, sales growth, and target prices of wireless firms over the period 1997 - 2004. I create a GAAP proxy for each non-GAAP variable to investigate the extent, to which fundamentals constructed from audited items capture non-financial information and to what degree analysts rely on GAAP-regulated versus other information. In addition I examine whether investors follow analysts’ interpretation of these items and whether they assess their implications correctly. The results show that analysts tend to under-react to most non-GAAP measures, which affects their accuracy. There is some evidence that analysts over-react to certain GAAP proxies. Investors rely on analysts’ interpretations as indicated by zero abnormal returns to positions taken on analysts’ forecasts. Sorting firms on customer acquisition cost, average revenue per user and subscriber base generates abnormal returns.

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