Comparing Non-GAAP EPS in Earnings Announcements and Proxy Statements

Dirk E. Black (), Ervin L. Black (), Theodore E. Christensen () and Kurt H. Gee ()
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Dirk E. Black: School of Accountancy, University of Nebraska-Lincoln, Lincoln, Nebraska 68588
Ervin L. Black: Steed School of Accounting, University of Oklahoma, Norman, Oklahoma 73019
Theodore E. Christensen: Tull School of Accounting, University of Georgia, Athens, Georgia 30605
Kurt H. Gee: Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802

Management Science, 2022, vol. 68, issue 2, 1353-1377

Abstract: We compare non-GAAP earnings per share (EPS) in firms’ annual earnings announcements and proxy statements using hand-collected data from U.S. Securities and Exchange Commission filings. We find that proxies for capital market incentives (contracting incentives) are more highly associated with firms’ disclosure of non-GAAP EPS in annual earnings announcements (proxy statements). However, we find systematic differences in the properties of firms’ non-GAAP earnings and exclusions depending on whether they disclose non-GAAP EPS in both the earnings announcement and the proxy statement. When firms disclose non-GAAP EPS in both documents, we find that non-GAAP EPS is more useful for assessing firm value. Specifically, these firms are more likely to: (1) exclude nonrecurring items, (2) exclude less persistent earnings components, and (3) provide less aggressive non-GAAP EPS. Our results suggest that non-GAAP EPS is higher in quality for investors when disclosed in both the annual earnings announcement and the proxy statement. We provide some of the first large-sample evidence consistent with the use of non-GAAP EPS metrics in both financial reporting and compensation contracting.

Keywords: non-GAAP EPS; contracting; compensation; valuation; value relevance (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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