Publications
Publications
- Journal of Financial Economics
Core Earnings: New Data and Evidence
By: Ethan Rouen, Eric C. So and Charles C.Y. Wang
Abstract
Using a novel dataset, we show that components of firms' GAAP earnings stemming from ancillary business activities or transitory shocks are significant in frequency and magnitude. These components have grown over time and are dispersed across various sections of the 10-K. Excluding them from GAAP earnings yields a core earnings measure that distinguishes between the recurring and non-recurring components of net income and forecasts future performance. Analysts and market participants are slow to impound these earnings components' implications, particularly the amounts disclosed in footnotes. Trading strategies that exploit non-core earnings produce abnormal returns of 8% per year.
Keywords
Core Earnings; Transitory Earnings; Non-operating Earnings; Quantitative Disclosures; Equity Valuation; Big Data; Business Earnings; Financial Reporting; Valuation
Citation
Rouen, Ethan, Eric C. So, and Charles C.Y. Wang. "Core Earnings: New Data and Evidence." Journal of Financial Economics 142, no. 3 (December 2021): 1068–1091.