The Impact of Media Attention on the Use of Alternative Earnings Measures

Miriam Koning, Gerard Mertens and Peter Roosenboom

Abacus, 2010, vol. 46, issue 3, 258-288

Abstract: The practice of reporting earnings measures that deviate from generally accepted accounting principles (non‐GAAP measures) has received negative attention in the media. In a period of increased regulatory concern for these reporting practices, we explore whether there has been a shift away from the use of non‐GAAP metrics. This study focuses on the Dutch situation, where regulators responded conservatively (‘light’) to the accounting scandals. This contrasts with the U.S., where regulators intervened with a radical (‘heavy’) reform of regulation. We analyse a sample of earnings press releases published in the period 2000–05 from companies listed at Euronext Amsterdam. Our findings indicate that Dutch companies report non‐GAAP measures frequently and prominently. However, companies' reporting behaviour changes after a peak in negative media attention for non‐GAAP reporting. The magnitude of the adjustments to GAAP earnings becomes smaller and companies seem to have different reasons to report non‐GAAP measures. The effect of the media attention is stronger when companies have been criticized for their non‐GAAP reporting in the press. Investors seem to have become more hesitant towards the use of non‐GAAP measures for their decision‐making after negative media attention. Together, these findings suggest that the negative media attention for non‐GAAP measures has influenced the decisions of investors and managers.

Date: 2010
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