The valuation of special items

Abstract

This research examines the value relevance of GAAP earnings, GAAP earnings excluding special items, and specific special items. We find GAAP earnings to be less value relevant than GAAP earnings adjusted to exclude special items. We find mixed results relating to the value relevance of net special items. Considering the value relevance of eight specific categories of special items, only two, in process research and development and merger related costs, appear to be significantly related to firm value. This suggests that analysts distinguish between types of special items and only specific types of special items contribute to firm value.