The informativeness of non-GAAP earnings after Regulation G?

Shin-Rong Shiah-Hou and Yi-Yun Teng

Finance Research Letters, 2016, vol. 18, issue C, 184-192

Abstract: This study explores the possibility that managers mislead investor perceptions through the disclosure of non-GAAP earnings even after SEC intervention (Reg G). We find that, on average, some higher qualities of exclusions, such as nonrecurring items, are moved from GAAP earnings to arrive at non-GAAP earnings. However, net income-decreasing other exclusions most related to recurring items are negatively associated with future operating income. Thus, managers still manipulate non-GAAP earnings to exclude certain recurring items from non-GAAP earnings even when reporting on the reconciliation table. We further use CEO and CFO selling shares as the key factor to test whether top executives convey good information to affect the firm's stock, and then mislead investors through disclosing non-GAAP earnings. We find that a CEO or CFO who sells their shares during the two weeks after the earnings announcement date is more likely to disclose non-GAAP earnings. Additionally, the negative correlations between other exclusions and future operating incomes for cases with executives’ sales are more significant than those for cases without executives’ sales. That is, even after SEC intervention, managers may disclose non-GAAP earnings to mislead investors' and garner private benefits.

Keywords: Non-GAAP earnings; GAAP earnings; Exclusions; Nonrecurring items; Recurring items; Regulation G (search for similar items in EconPapers)
JEL-codes: G14 G38 M48 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612316300551
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:18:y:2016:i:c:p:184-192

DOI: 10.1016/j.frl.2016.04.015

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().