Non-GAAP Earnings and the Earnings Quality Trade-off

Ribeiro, Andrea; Shan, Yaowen; Taylor, Stephen L.

doi:10.2139/ssrn.3277318

Cited by 2 publications

(3 citation statements)

References 37 publications

(58 reference statements)

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“…These mixed benefits of non‐GAAP earnings are highlighted by Ribeiro et al. (2019), who find they are more value‐relevant and predictive but less conservative and timely than GAAP earnings.…”

Section: Literature Reviewmentioning

confidence: 99%

“…This is supported by inconsistent calculations of non-GAAP earnings over time (Bradshaw and Sloan 2002;Bhattacharya et al 2004Bhattacharya et al , 2007 and that exclusions from non-GAAP earnings are relevant (Doyle et al 2003). These mixed benefits of non-GAAP earnings are highlighted by Ribeiro et al (2019), who find they are more value-relevant and predictive but less conservative and timely than GAAP earnings.…”

Section: Literature Reviewmentioning

confidence: 99%

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Non‐GAAP Earnings Disclosure Trends in New Zealand

Carvajal

Lont

Scott

2021

Australian Accounting Review

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Non‐generally accepted accounting practice (non‐GAAP) earnings provoke mixed opinions on their usefulness. We provide evidence over a 15‐year period that captures changes to accounting standards, economic conditions and regulatory guidance notes on non‐GAAP earnings. First, many firms do not use non‐GAAP earnings measures, with its popularity peaking at almost 59% in 2012 compared to below 33% in 2004, before decreasing to under 48% by 2018. The most common adjustments are tax, interest and depreciation, consistent with the preference for operating performance metrics. We document an improvement in the frequency of ‘Unknown’ adjustments (those that cannot be reconciled), reaching 32% in 2007, but it was not until 2013 that a significant improvement occurred. As this coincides with the timing of a Financial Markets Authority (FMA) guidance note requiring non‐GAAP earnings reconciliations, implying greater disclosure transparency needs clear regulatory guidelines. Second, we find an elevated use of asset impairment, restructuring and fair value adjustments around the Global Financial Crisis (GFC), which suggests managers perceive GAAP earnings have to be supplemented during major economic shocks.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Non‐GAAP Earnings Disclosure Trends in New Zealand

Carvajal

Lont

Scott

2021

Australian Accounting Review

View full text Add to dashboard Cite

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“…Prior studies find that non-GAAP earnings are more value-relevant in forming stock prices than GAAP earnings (Bradshaw and Sloan, 2002; Brown and Sivakumar, 2003; Lougee and Marquardt, 2004; Ribeiro et al , 2019). In a similar vein, non-GAAP earnings are useful to many other market participants.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Non-GAAP earnings quality in firms with data breach incident

Nie

2021

ARA

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PurposeAfter the massive data breach incident in 2017, Equifax voluntarily disclosed non-GAAP earnings that beat earnings targets by eliminating breach-related charges and used non-GAAP metrics to determine its executives' compensations. However, it is unclear whether its non-GAAP earnings exclusions and the use of non-GAAP earnings in compensation plans are justified. The purpose of this study is to examine non-GAAP earnings quality in firms with data breach incidents.Design/methodology/approachThe authors identified data breach firms from incidents reported in Privacy Rights Clearinghouse (privacyrights.org) during the period 2004–2017. The authors separate the victim firms into six groups based on financial status and non-GAAP earnings disclosure. Quarterly manager non-GAAP earnings per share data is retrieved from the database created by Bentley et al. (2018). Ordinary linear regression models are used in this study to test the authors’ hypothesis.FindingsThe authors find that, in general, the informativeness of non-GAAP earnings is higher than that of GAAP earnings in data breach firms. However, non-GAAP earnings quality vary in data breach firms with different financial health status. The quality of non-GAAP earnings in loss firms with data breach is higher than those in profit firms. Loss converters (i.e. data breach firms with negative GAAP earnings but positive non-GAAP earnings) disclose low quality non-GAAP earnings, which is different from the findings in prior studies.Practical implicationsThe findings are particularly useful to analysts who want to make accurate earnings forecasts of data breach firms by incorporating managers' non-GAAP earnings disclosures.Originality/valueThe authors are among the first to comprehensively analyze the quality of non-GAAP earnings in firms with data breaches. The findings in this study address the analysts' concern that data breach firms use non-GAAP earnings metrics to determine executives' compensation after the massive data breach incidents. Next, the authors provide evidence that the financial status of data breach firms affects the quality of non-GAAP earnings.

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Non-GAAP Earnings and the Earnings Quality Trade-off

Cited by 2 publications

References 37 publications

Non‐GAAP Earnings Disclosure Trends in New Zealand

Non‐GAAP Earnings Disclosure Trends in New Zealand

Non-GAAP earnings quality in firms with data breach incident

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