The risk-relevance of non-GAAP earnings

Frank Heflin (), Kalin S. Kolev and Benjamin Whipple
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Frank Heflin: University of Georgia
Kalin S. Kolev: Zicklin School of Business, Baruch College – CUNY
Benjamin Whipple: University of Georgia

Review of Accounting Studies, 2024, vol. 29, issue 1, No 14, 493-524

Abstract: Abstract We study the risk-relevance of non-GAAP earnings. Risk is an important earnings attribute in valuation models, and the FASB’s conceptual framework identifies providing information about risk as a primary objective for earnings. Although prior research addresses the value-relevance of non-GAAP earnings, researchers have paid little attention to their risk-relevance. We find that non-GAAP adjustments yield an earnings number that isolates the more risk-relevant components of earnings. Excluded earnings components, however, contain some, albeit less, information about risk. Thus, although non-GAAP earnings can help investors prioritize the more versus less risk-relevant components of earnings, non-GAAP earnings are potentially most informative about risk when used together with GAAP earnings.

Keywords: Non-GAAP earnings; Non-GAAP exclusions; Special items; Other item exclusions; Equity risk; Risk-relevance (search for similar items in EconPapers)
JEL-codes: D82 M41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-022-09725-w

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