Non‐GAAP Earnings Disclosure Trends in New Zealand

Abstract

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.

Alternative Performance Measures: A Structured Literature Review of Research in Academic and Professional Journals

“…In a recent study, Carvajal et al. ( 2021 ) provide empirical evidence for the long-term period 2004–2018, finding that the popularity of NGFMs in annual reports of listed New Zealand companies on the NZX main board increased significantly from 2004 (below 33%) to 2012 (almost 59%), but then declined substantially again until 2018 (under 48%). Besides the United Kingdom and the Australasian region, there are only few articles conducting cross-sectional and time-series analysis of APMs for other regions (1.0%), such as Brazil (Alcalde et al.…”

“…Regarding New Zealand, Rainsbury et al (2015) document that the proportion of listed companies reporting GAAP-adjusted earnings measures was only 5% in 2004 and 2005, increasing in subsequent years to reach a peak of 20% in 2011 and returning to 16% in 2012. In a recent study, Carvajal et al (2021) provide empirical evidence for the long-term period 2004-2018, finding that the popularity of NGFMs in annual reports of listed New Zealand companies on the NZX main board increased significantly from 2004 (below 33%) to 2012 (almost 59%), but then declined substantially again until 2018 (under 48%). Besides the United Kingdom and the Australasian region, there are K only few articles conducting cross-sectional and time-series analysis of APMs for other regions (1.0%), such as Brazil (Alcalde et al 2013; Vasconcelos de Andrade and Dal-Ri Murcia 2019).…”

Internacional evidence on non-GAAP earnings: a cross-country investigation

“…Studies from Isidro and Marques (2013), Isidro and Marques (2015), Malone et al (2016) and Carvajal, et al (2022) also applies controls for cross-listing firms in their sample.…”

“…); (v) Chen, Lee, Lo and Yu (2021); (vi)Griffin and Lont (2021);(vii)Carvajal, Lont and Scott (2022); and (viii) Clinch, Tarca and Wee (2022). Such papers are reviewed separately at section3.2.4.4.…”