Clear Water Bay, Kowloon

for helping us to access financial analysts. Finally, we thank the financial analysts and MBA students who participated in this study. The increase in the number of firms disclosing pro forma earnings in their earnings announcements in addition to disclosing earnings calculated according to generally accepted accounting principles (GAAP) has prompted regulators, Congress, and the financial press to voice concerns about pro forma earnings. A major concern is that pro forma earnings disclosures affect less sophisticated and more sophisticated investors differently, which could result in wealth transfers from the former to the latter. This paper presents an experiment that examines the effect of pro forma earnings disclosures on the judgments of nonprofessional (i.e., less sophisticated) investors and analysts (i.e., more sophisticated investors). Consistent with empirical evidence, the pro forma earnings in our experiment exceeded GAAP earnings. The results indicate that nonprofessional investors who see an earnings announcement that contains both pro forma and GAAP disclosures assess a higher stock price than do nonprofessionals who see an earnings announcement that contains only GAAP disclosures, whereas analysts ’ stoc