The value relevance of a non‐GAAP performance metric to the capital markets

Susan M. Albring, María T. Cabán‐García and Jacqueline L. Reck

Review of Accounting and Finance, 2010, vol. 9, issue 3, 264-284

Abstract: Purpose - The study is driven by concerns raised by standard setters and others about the usefulness of performance reporting under generally accepted accounting principles (GAAP). Of primary interest is whether explicitly defining what information should be included in earnings results in an earnings measure that is more relevant than operating earnings computed according to current GAAP. The purpose of this paper is to explore whether reducing management discretion in the reporting of performance adds to the value relevance of the performance measures reported to capital markets. Design/methodology/approach - The value relevance of this non‐GAAP earnings measure is examined by estimating market valuation and returns models for 518 US firms included in the Standard & Poor's 500 Index over the time period 2002‐2007. Findings - Results show that the explicitly defined non‐GAAP measure used is significantly associated with equity market values and returns and is significantly more value‐relevant than the GAAP measure. Originality/value - The paper contributes to accounting literature assessing the relevance of earnings in setting equity market value. More specifically, it provides evidence consistent with prior results that non‐GAAP performance measures are more useful in valuation than GAAP earnings. However, in contrast with prior studies, the more explicit performance measure the paper examines removes some of the classificatory discretion pervasive in other non‐GAAP earnings metrics.

Keywords: Earnings; Financial reporting; Accounting standards; United States of America (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:rafpps:v:9:y:2010:i:3:p:264-284

DOI: 10.1108/14757701011068066

Access Statistics for this article

Review of Accounting and Finance is currently edited by Nawazish Mirza

More articles in Review of Accounting and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().