NDLI: An Empirical Evaluation of the Usefulness of Non-GAAP Accounting Measures in the Real Estate Investment Trust Industry

Content Provider	Springer Nature Link
Author	Fields, Thomas D. Rangan, Srinivasan Thiagarajan, S. Ramu
Copyright Year	1998
Abstract	We conduct three sets of analyses to compare the usefulness of net income, based on generally accepted accounting principals (GAAP), and the industry-advanced funds from operations (FFO) in the context of the real estate investment trust (REIT) industry. In our first set of tests, we find that FFO is more strongly associated with one-year ahead FFO and one-year ahead operating cash flows than is net income. Conversely, we find that net income explains more variation in one-year ahead net income and current stock price than does FFO. Second, in support of the claim that some REITs manipulate FFO, we document that young REITs and REITs that are likely to access capital markets are more likely to manage FFO. Third, we find that, for a sample of firms that disclose current value information, both net income and FFO fail to reflect holding gains or losses on unsold properties in a timely manner. Overall, our analyses suggest that the REIT industry's claim that FFO is more useful than net income is premature because the superiority of one measure over the other is highly contextual.
Starting Page	103
Ending Page	130
Page Count	28
File Format	PDF
ISSN	13806653
Journal	Review of Accounting Studies
Volume Number	3
Issue Number	1-2
e-ISSN	15737136
Language	English
Publisher	Kluwer Academic Publishers
Publisher Date	1998-01-01
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Accounting/Auditing Finance /Banking
Content Type	Text
Resource Type	Article
Subject	Accounting

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