Buffering or Backfiring? Non-GAAP Reporting and Investor Reactions to Material GAAP Restatements

Theodore E. Christensen, Jens Mueller, Soenke Sievers and Christian Sofilkanitsch
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Theodore E. Christensen: University of Georgia, Terry College of Business
Jens Mueller: Paderborn University
Soenke Sievers: Paderborn University
Christian Sofilkanitsch: Nazarbayev University, Graduate School of Business

No 2026/04, Working Papers from Nazarbayev University, Graduate School of Business

Abstract: We examine whether ex ante non-GAAP reporting moderates short-window market reactions to material GAAP restatements. Based on a sample of 1,619 U.S. restatements from 2003-2021, we find that firms reporting non-GAAP earnings in the pre-restatement quarter experience significantly less negative three-day abnormal returns around restatement announcements than GAAP-only reporters, consistent with a buffering effect. However, this effect is conditional on managers' prior non-GAAP reporting choices. High-quality non-GAAP reporting is associated with attenuated market penalties. In contrast, firms with aggressive non-GAAP reporting face more negative reactions than GAAP-only reporters - especially for revenue-related and Form 8-K restatements. Complementary evidence based on bid-ask spreads and analyst forecast revisions indicates that non-GAAP reporting tempers both information risk and cash flow revisions. Overall, our results highlight the dual role of non-GAAP disclosures as either credibility buffers or amplifiers when GAAP reporting integrity is called into question.

Keywords: Non-GAAP reporting; GAAP restatements; market penalties; reporting uncertainty; disclosure credibility (search for similar items in EconPapers)
JEL-codes: D82 G14 M41 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2026-04
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