Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
  • Browse All
    Core Earnings? New Data and Evidence
    16 Oct 2019Working Paper Summaries

    Core Earnings? New Data and Evidence

    by Ethan Rouen, Eric So, and Charles C.Y. Wang
    Using a novel dataset of earnings-related disclosures embedded in the 10-Ks, this paper shows how detailed financial statement analysis can produce a measure of core earnings that is more persistent than traditional earnings measures and forecasts future performance. Analysts and market participants are slow to appreciate the importance of transitory earnings.
    LinkedIn
    Email

    Author Abstract

    Using a novel dataset that comprehensively classifies the quantitative financial disclosures in firms' 10-Ks, including those hidden in the footnotes and the MD&A, we show that disclosures of non-operating and less persistent income-statement items are both frequent and economically significant, and increasingly so over time. Adjusting GAAP earnings to exclude these items creates a measure of core earnings that is highly persistent and that forecasts future performance. Analysts and market participants are slow to impound the implications of transitory earnings. Trading strategies that exploit cross-sectional differences in firms' transitory earnings produce abnormal returns of 7-to-10 percent per year.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: October 2019
    • HBS Working Paper Number: HBS Working Paper No. 20-047
    • Faculty Unit(s): Accounting and Management
      Trending
        • 23 May 2023
        • Research & Ideas

        Face Value: Do Certain Physical Features Help People Get Ahead?

        • 06 Jun 2016
        • Research & Ideas

        Skills and Behaviors that Make Entrepreneurs Successful

        • 25 Feb 2019
        • Research & Ideas

        How Gender Stereotypes Kill a Woman’s Self-Confidence

        • 26 Apr 2023
        • In Practice

        Is AI Coming for Your Job?

        • 16 May 2023
        • HBS Case

        How KKR Got More by Giving Ownership to the Factory Floor: ‘My Kids Are Going to College!’

    Ethan C. Rouen
    Ethan C. Rouen
    Assistant Professor of Business Administration
    Contact
    Send an email
    → More Articles
    Charles C.Y. Wang
    Charles C.Y. Wang
    Glenn and Mary Jane Creamer Associate Professor of Business Administration
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Business Earnings
    • Equity
    • Management Analysis, Tools, and Techniques

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College