Non-GAAP earnings and stock price crash risk

Charles Hsu, Rencheng Wang and Benjamin C. Whipple

Journal of Accounting and Economics, 2022, vol. 73, issue 2

Abstract: We investigate whether non-GAAP earnings disclosures increase stock price crash risk. Consistent with non-GAAP disclosures allowing managers to inflate investors’ perceptions about firm performance, our results indicate that income increasing non-GAAP reporting increases crash risk. We also find that managers can use non-GAAP reporting as a substitute for earnings management to withhold bad news from investors (the traditional explanation for crashes). Finally, we find a positive association between non-GAAP reporting and the likelihood of subsequent events that can trigger a crash. Overall, our evidence is consistent with some non-GAAP disclosures exposing investors to risks of large and sudden price declines.

Keywords: Non-GAAP earnings; Stock price crash risk; Disclosure; Regulation (search for similar items in EconPapers)
JEL-codes: D82 G12 G17 G18 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:73:y:2022:i:2:s0165410121000884

DOI: 10.1016/j.jacceco.2021.101473

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