Disclosure regulations work: The case of regulation G

Yu-An Chen (), Ann F. Medinets () and Dan Palmon ()
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Yu-An Chen: Rutgers Business School
Ann F. Medinets: Rutgers Business School
Dan Palmon: Rutgers Business School

Review of Quantitative Finance and Accounting, 2022, vol. 58, issue 3, No 6, 1037-1062

Abstract: Abstract Regulators and standard setters strive to enhance the transparency of corporate disclosures. To address concerns regarding the improper use of non-GAAP financial measures, the US Securities and Exchange Commission (SEC) implemented Regulation G and related amendments in 2003. US firms that report non-GAAP earnings must now reconcile them with the most directly comparable GAAP earnings, which are presented with equal or greater prominence than non-GAAP earnings. This paper examines the effect of Regulation G on analysts’ information environment for non-GAAP reporting firms. Before Regulation G, non-GAAP earnings reporting is associated with less accurate, more positively biased, and more dispersed analysts’ earnings forecasts. By contrast, the quality of analysts’ earnings forecasts for non-GAAP reporting firms is enhanced by higher accuracy, less bias, and lower dispersion after Regulation G. The case for Regulation G making non-GAAP disclosures more transparent may be relevant for regulators and standard setters when considering future disclosure regulations.

Keywords: Non-GAAP earnings; Regulation G; Information environment; Financial analyst (search for similar items in EconPapers)
JEL-codes: F65 G23 M41 M48 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-021-01017-9

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