A Re-Examination of the “Informational” Role of Non-GAAP Earnings in the Post-Reg G Period

Xuan Song, Huan Qiu (), Ying Lin, Michael S. Luehlfing and Marcelo Eduardo
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Xuan Song: School of Business, Belhaven University, Jackson, MS 39202, USA
Huan Qiu: Else School of Management, Millsaps College, Jackson, MS 39210, USA
Ying Lin: School of Business, Belhaven University, Jackson, MS 39202, USA
Michael S. Luehlfing: School of Accountancy, College of Business, Louisiana Tech University, Ruston, LA 71272, USA
Marcelo Eduardo: School of Business, Mississippi College, Clinton, MS 39058, USA

JRFM, 2025, vol. 18, issue 8, 1-32

Abstract: In this study, we utilize a unique quarterly dataset of non-GAAP earnings to re-examine the “informational” role of non-GAAP earnings from the perspective of value relevance and earnings predictability in the post-Reg G period. We find that non-GAAP earnings are more value relevant and can better predict future operating earnings of a firm compared to equivalent GAAP earnings. Additionally, we also find empirical evidence suggesting that the difference in the value relevance and earnings predictability between non-GAAP and equivalent GAAP earnings can vary across but cannot be completely mitigated by firm-level characteristics, such as the market value of equity, accruals quality, analyst coverage, and managerial ability of a firm. Moreover, our supplementary analysis reveals that the superior value relevance and predictive power of non-GAAP earnings persist even after the SEC’s release of the Compliance and Disclosure Interpretations (C&DI) in 2010. Overall, our empirical evidence suggests a superior “informational” role of non-GAAP earnings to equivalent GAAP earnings in terms of valuation and predictability on future operating performance in the post-Reg G period.

Keywords: earnings informativeness; non-GAAP earnings; value relevance; earnings predictability (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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