The use of non‐GAAP measures in initial public offerings

Abstract

This study examines the use of non-GAAP measures (NGMs) in initial public offerings (IPOs). Based on NGMs collected for a sample of 300 IPO firms from 2009 to 2013, we find that 60% of IPO firms disclose NGMs in their registration filings. While a variety of NGMs are used, earnings before interest, tax, depreciation, and amortization (EBITDA) and adjusted EBITDA are the most frequently reported NGMs. The vast majority of the reported NGMs are greater than the firms' GAAP earnings. The results also show that IPO firms are more likely to disclose NGMs when their GAAP earnings are close to benchmarks, when they report special items, and when they have a higher proportion of intangible assets. In addition, the likelihood of reporting NGMs decreases for IPO firms with high R&D expenditures.

IPO performance anomaly: evidence from new aged ventures and loss-making listings in India

“…EBITDA representing the operating cash profit after excluding cash operating expenses overcomes the plausibility of results distortion due to varied asset structures, debt-equity mix and tax rates across the firms and periods. The measure has been used in past studies (Liu and Zhang, 2020; Zheng and Stangeland, 2007). The study examines the earnings power of post-listing years 1 and 2; the averaging is avoided due to expected inconsistency in the post-listing years' performance.…”