Graduation Year


Date of Submission


Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

George Batta

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2021 Patrick C Chen


Equity analysts adjust GAAP earnings to report non-GAAP figures that they believe better represent a firm’s current and future performance. The importance of such non-GAAP(street) figures has been determined and accepted by the literature, but the process in which analysts arrive at such figures is less understood. I apply a newly defined measure of firm complexity using text based analysis of firm annual reports and investigate its effect. When complexity increases, it becomes harder to individuate different components of a system. When that system is a firm, complexity then increases the difficulty in determining an accurate measure of performance. The effect of this type of firm characteristic on analysts has yet to be explored. I find that firms with higher complexity exhibit a greater difference between GAAP earnings and analyst adjusted non-GAAP earnings. A cross sectional test featuring earnings volatility is also found to increase the marginal effect of complexity on the difference. This suggests that firm complexity plays an important role in influencing an analyst’s decision to adjust GAAP earnings.