Non-GAAP earnings quality in firms with data breach incident

Abstract

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.

Development of Network Security Based on the Neural Network PSD Algorithm

“…e formula is to take the ratio of the individual fitness value to the sum of all individual fitness as the probability of the individual being selected. (6) Obtain the optimization result: Determine whether the obtained results meet the training requirements and whether the termination conditions are met. If it is reached, pass the obtained optimal initial weights and thresholds to the Elman neural network, ending the iterative process.…”

“…e total number of data breaches in 2020 surpassed the previous maximum and reached a new high, becoming the highest number of breaches so far. e frequent occurrence of security incidents shows the importance of paying attention to the security of the network environment [6]. In 2014, the state made it clear that in order to ensure national security, the maintenance of network security as a part of it is also crucial.…”