Non-GAAP Earnings Disclosures on the Face of the Income Statement by UK Firms: The Effect on Market Liquidity

Andreas Charitou, Nikolaos Floropoulos, Irene Karamanou and George Loizides

The International Journal of Accounting, 2018, vol. 53, issue 3, 183-202

Abstract: This study benefits by a special feature of the UK information environment which allows UK firms to disclose non-GAAP earnings on the face of the income statement to examine two interrelated questions. First, we ask whether the decision to disclose non-GAAP earnings on the face of the income statement is related to the firm's financial performance and corporate governance characteristics, and second, we investigate the effect of this disclosure decision on market liquidity. Using a dataset of 1227 hand-collected firm-year observations during the period 2006–2013, we show that better governed firms and firms with weaker financial performance are more likely to disclose non-GAAP earnings. Our evidence also suggests that this disclosure is associated with increased levels of market liquidity and the results hold after controlling for self-selection bias. We conclude that firms' decision to disclose non-GAAP earnings on the face of the income statement is more consistent with the incentive to provide information than to mislead the market.

Keywords: Non-GAAP earnings; Pro forma earnings; Liquidity; Corporate governance (search for similar items in EconPapers)
JEL-codes: G14 G34 M40 M48 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:53:y:2018:i:3:p:183-202

DOI: 10.1016/j.intacc.2018.07.003

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