The information content of mandatory and discretionary non-GAAP earnings

Wessel M. Badenhorst and Rieka von Well

Pacific Accounting Review, 2023, vol. 35, issue 3, 451-476

Abstract: Purpose - This paper aims to investigate the pricing of discretionary earnings in South Africa. This is a unique setting, as South African listed firms also report mandatory non-GAAP earnings (“headline earnings”). Design/methodology/approach - Results are based on multivariate regression analyses for South African firms that report from 2010 to 2019. Findings - Findings show that the value-relevance of discretionary earnings exceeds that of both GAAP earnings and headline earnings. In addition, placement of discretionary earnings reconciliations communicates information about the decision-usefulness of earnings. Originality/value - Discretionary earnings remain the most value-relevant earnings measure, despite the divergent decision-useful characteristics offered by headline earnings and GAAP earnings. Therefore, the most decision-useful earnings reflect unique industry or firm characteristics rather than the assurance arising from regulation.

Keywords: Earnings; non-GAAP; Value-relevance; Discretionary; Headline (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:par-07-2022-0102

DOI: 10.1108/PAR-07-2022-0102

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