Has the Regulation of Pro Forma Reporting in the US Changed Investors’ Perceptions of Pro Forma Earnings Disclosures?

Black, Dirk E.; Black, Ervin L.; Christensen, Theodore E.; Heninger, William G.

doi:10.1111/j.1468-5957.2012.02297.x

Cited by 75 publications

(63 citation statements)

References 40 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…This interpretation is aligned with the results of Black et al. (), who use indicators of aggressive non‐GAAP reporting and find that investors of US firms discount disclosures that allow firms to disclose profits or meet analysts’ consensus with non‐GAAP earnings measures (when they fall short of such benchmarks with operating earnings).…”

Section: Resultssupporting

confidence: 83%

Impression Management and Non‐GAAP Disclosure in Earnings Announcements

Guillamón‐Saorín

Isidro

Marques

2017

Business Fin & Account

View full text Add to dashboard Cite

We study the market's reaction to the disclosure of non‐GAAP earnings measures that are combined with high impression management. We construct an impression management score that captures several communication techniques that managers often use to positively bias investors’ perceptions of firm performance. We hand‐collect and code both quantitative and qualitative information from earnings announcement press releases of large European firms. Our results indicate that non‐GAAP measures are informative to capital markets. However, non‐GAAP adjustments are more persistent when accompanied by higher levels of impression management. This evidence is consistent with managers attempting to distort users’ perceptions when non‐GAAP adjustments are of lower quality. Market reaction tests suggest that investors are able to see through managers’ intentions and discount non‐GAAP information that is accompanied by high impression management. Moreover, investors in more sophisticated markets penalize non‐GAAP measures communicated with high impression management. Our results are robust to a battery of sensitivity tests, including the use of a machine‐coded tone measure.

show abstract

Section: Resultssupporting

confidence: 83%

Impression Management and Non‐GAAP Disclosure in Earnings Announcements

Guillamón‐Saorín

Isidro

Marques

2017

Business Fin & Account

View full text Add to dashboard Cite

show abstract

“…This conclusion challenges the common notion that converting a GAAP loss to a non‐GAAP profit can be viewed as a signal of aggressive non‐GAAP reporting (e.g., Black and Christensen [], Black et al. []).…”

Section: Introductionmentioning

confidence: 78%

Non‐GAAP Earnings Disclosure in Loss Firms

Leung

Veenman

2018

J of Accounting Research

120

View full text Add to dashboard Cite

This study examines the incremental information in loss firms’ non‐GAAP earnings disclosures relative to GAAP earnings. Using a large sample obtained through textual analysis and hand‐collection, we posit and find that loss firms’ non‐GAAP earnings exclusions offset the low informativeness of GAAP losses for forecasting and valuation. Loss firms’ non‐GAAP earnings are highly predictive of future performance and are valued by investors, while the expenses excluded from GAAP earnings are not. Additional tests suggest that loss firms disclosing non‐GAAP profits have significantly better future performance than GAAP‐only loss firms and are not overvalued by investors. Comparing non‐GAAP earnings of profitable firms to those of loss firms, we find that loss firms’ non‐GAAP metrics are significantly more predictive and less strategic. We conclude that non‐GAAP earnings disclosures are particularly informative about loss firms and help investors disaggregate losses into components that have differential implications for forecasting and valuation.

show abstract

“… Other prior research has examined the effect of Reg G on earnings response coefficients (ERC), which capture investor response to one figure disclosed in the earnings announcement (e.g., Marques ; Black et al ). The abnormal R 2 measure captures the importance of the earnings announcement, including all disclosures, relative to all other sources of information throughout the year. …”

mentioning

confidence: 99%

“… The independent variable NG is simply a proxy for the disclosure of street earnings used extensively in prior research (e.g., Kolev et al ) and is not identical to the hand‐collected non‐GAAP earnings disclosure variable, PR , described later, and used in other research (e.g., Black et al ). Additionally, Bentley et al () had identified the frequency at which the proxies used in prior literature likely diverge from the actual management disclosures.…”

mentioning

confidence: 99%

The Effect of Regulation on the Timeliness and Informational Role of Earnings Announcements

Pawlewicz

2018

Contemporary Accting Res

View full text Add to dashboard Cite

This paper examines the effect of regulations (i.e., the Sarbanes‐Oxley Act and Regulation G) on both the timing of earnings announcements and their relative informational role. I find that after the regulation of earnings announcements was instituted, firms began issuing less timely earnings announcements, and those announcements have become more important for shareholders. Ceteris paribus, after the regulations, firms have disclosed their fiscal year‐end announcements more than four days later than they had prior to regulatory changes. My results are robust to sensitivity analyses that control for concurrent earnings announcement disclosures and other changes instituted by the Sarbanes‐Oxley Act. Further, I find evidence suggesting that the relative informational role of earnings announcements has increased significantly in the post‐regulation period. This study highlights a shift in both the timeliness and investor perceptions of earnings announcements spurred by the implementation of regulatory oversight, indicating a trade‐off of timeliness for relevance.

show abstract

Has the Regulation of Pro Forma Reporting in the US Changed Investors’ Perceptions of Pro Forma Earnings Disclosures?

Cited by 75 publications

References 40 publications

Impression Management and Non‐GAAP Disclosure in Earnings Announcements

Impression Management and Non‐GAAP Disclosure in Earnings Announcements

Non‐GAAP Earnings Disclosure in Loss Firms

The Effect of Regulation on the Timeliness and Informational Role of Earnings Announcements

Contact Info

Product

Resources

About