The Presentation Arrangements of Pro Forma Earnings Disclosures: Managerial Incentives and Market Responses

Wang, Guannan

doi:10.5430/afr.v3n3p27

Cited by 7 publications

(9 citation statements)

References 20 publications

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“…Moreover, a large number of studies focus on whether non‐GAAP exclusions allow a firm to move from a position of missing a strategic earnings target based on GAAP earnings to meeting the target based on non‐GAAP earnings. These studies infer that the motivation for the exclusions is to mislead investors by convincing them that an “artificial” performance measure meets a desired outcome (Bhattacharya et al., ; Black & Christensen, ; Bradshaw et al., ; Brockbank, ; Doyle, Jennings, & Soliman, ; Graham et al., ; Isidro & Marques, ; Lopez, McCoy, Taylor, & Young, ; Marques, ; McVay, ; Wang, )…”

Section: Regulatory Standard Setting and Academic Foundationsmentioning

confidence: 99%

“…G, studies generally find that the quality of non‐GAAP disclosures increased subsequent to Reg. G (Black, Christensen, Kiosse, & Steffen, ; Chen, ; Entwistle et al., ; Heflin & Hsu, ; Kolev et al., ; Wang, ). For example, Kolev et al.…”

Section: Regulatory Standard Setting and Academic Foundationsmentioning

confidence: 99%

“…These studies justify this proxy by noting the sizable overlap between I/B/E/S‐ and manager‐reported non‐GAAP metrics and the fact that analysts likely get their information from managers (e.g., Doyle et al., ; Heflin & Hsu, ; Kolev et al., ) . Several other studies hand‐collect relatively small samples of manager‐disclosed non‐GAAP earnings numbers from earnings press releases (e.g., Bhattacharya et al., , ; Johnson & Schwartz, ; Lee & Chu, ; Leung & Veenman, ; Lougee & Marquardt, ; Wang, ) and argue that, although there is significant overlap between the performance metrics disclosed by managers and those provided by forecast data providers, performance metrics provided by these two parties differ for a non‐trivial proportion of observations (approximately 33%). Nevertheless, while studies using hand‐collected data can more precisely focus on managers’ incentives using managers’ reported numbers, their sample sizes are limited due to the cost of hand‐collection.…”

Section: Regulatory Standard Setting and Academic Foundationsmentioning

confidence: 99%

See 2 more Smart Citations

Non‐GAAP reporting: Evidence from academia and current practice

Black

Christensen

Ciesielski

et al. 2018

Business Fin & Account

187

136

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The number of firms reporting earnings on a non-GAAP basis has increased dramatically over the last decade, and non-GAAP reporting is now commonplace in capital markets. This proliferation of non-GAAP reporting has renewed both regulators' and standard setters' interests in these alternative performance metrics. For example, the SEC, FASB, and IASB have all recently questioned what this increasing reporting trend means for IFRS-and US-GAAP-based reporting and whether these measures are misleading to investors. This increasing focus on non-GAAP metrics motivates us to synthesize the nearly two decades of research on non-GAAP reporting to provide insights on what academics have learned to date about this reporting practice. Then, we utilize a novel dataset of detailed non-GAAP disclosures to provide new descriptive evidence on current trends in non-GAAP reporting and its recent proliferation. Finally, we discuss important questions for future researchers to consider in moving the literature forward. K E Y W O R D Snon-GAAP earnings, regulation, standard setting INTRODUCTIONManagers, financial analysts, investors, lenders, compensation committees, and other stakeholders often evaluate a company's earnings performance using metrics other than GAAP-based net income. These stakeholders generally start with GAAP earnings and back out (or exclude) earnings components that they deem to be transitory or noncash. They argue that these excluded items are less relevant for assessing firm performance and that the "non-GAAP" performance number is more appropriate for their intended purposes. The growth in these non-GAAP metrics over the past 20 years reflects a widespread acceptance of non-standard performance metrics as a way to evaluate firm performance.Although skeptics have frequently viewed non-GAAP disclosure as a threat to the traditional GAAP-based income statement, regulators recognize that non-GAAP metrics can be informative to investors and have laid the groundwork for firms to disclose these metrics in a transparent manner. Standard setters and regulators have recently renewed J Bus Fin Acc. 2018;45:259-294. wileyonlinelibrary.com/journal/jbfa

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Section: Regulatory Standard Setting and Academic Foundationsmentioning

confidence: 99%

Section: Regulatory Standard Setting and Academic Foundationsmentioning

confidence: 99%

Section: Regulatory Standard Setting and Academic Foundationsmentioning

confidence: 99%

See 1 more Smart Citation

Non‐GAAP reporting: Evidence from academia and current practice

Black

Christensen

Ciesielski

et al. 2018

Business Fin & Account

187

136

View full text Add to dashboard Cite

show abstract

“…Combining the findings and evidence of informative and opportunistic motivations for disclosing non-GAAP financial measures, Wang (2014) provides a different explanation for the behaviors of managers and the potential response of the market participants with respect to non-GAAP financial measures. His study shows that the response from the market is varied given how much knowledge the investors have, what the economic conditions are, and what penalties are in place for misreporting.…”

Section: Literature Review and Research Questionsmentioning

confidence: 96%

“…This time frame chosen is of particular interest also because not only does it explain firms' behavior in times of crisis but also the response to Regulation G that was introduced in the US in 2003. My study is related the findings in Wang (2014) as it assesses the quality of Canadian firms' of non-GAAP financial disclosures by comparing the adjustments firms are making to their GAAP information to detailed guidance from regulators.…”

Section: Literature Review and Research Questionsmentioning

confidence: 99%

Non-GAAP Financial Measures: Evidence From Canada

Hassan¹

2021

Preprint

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This paper investigates non-GAAP financial measures voluntarily reported by Canadian companies listed on Toronto stock exchange (TSX) and Toronto Ventures Exchange (TSXV) for the year 2017. Non-GAAP measures are those that do not adhere to the requirements of generally accepted accounting principles (GAAP) and are used to communicate those aspects of firms’ operations which the firms see as relevant for the users of financial statements. This study is an exploratory research which describes current firm practices in reporting non-GAAP financial measures among three industry groups, namely Real Estate, Blockchain/Cryptocurrency and Cannabis firms. This paper also assesses the quality of non-GAAP financial disclosures in accordance with the regulatory guidance. The study is motivated by recent regulatory proposals issued by the Canadian Securities Administrators (CSA), under the National Instrument NI 52-112 and by the Accounting Standards Board (AcSB) pertaining to reporting non-GAAP performance measures. The main contribution of this study is a detailed content analysis of a sample of Canadian firms. My analysis of hand collected data from the Management Discussion and Analysis (MD&A) indicates a plethora of reported “non-GAAP financial measures” disclosed by companies. The analysis also indicates that firms are falling short on parameters such as understandability, comparability, standardization, consistency and persistence of non-GAAP financial measures which are essential under the existing guidelines, and that regulation of non-GAAP financial measures would be beneficial. The study’s findings may be relevant to regulators for formulating guidance on reporting non-GAAP measures and identifies areas of potential future studies in the area of non-GAAP financial measures. Keywords: Non-GAAP financial measures, Non-GAAP earnings, Pro forma earnings, Non-IFRS measures, Street earnings, Core earnings, Adjusted earnings and NI 52-112.

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Policy implications of research on non-GAAP reporting

Black

Christensen

2018

Research in Accounting Regulation

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The Presentation Arrangements of Pro Forma Earnings Disclosures: Managerial Incentives and Market Responses

Cited by 7 publications

References 20 publications

Non‐GAAP reporting: Evidence from academia and current practice

Non‐GAAP reporting: Evidence from academia and current practice

Non-GAAP Financial Measures: Evidence From Canada

Policy implications of research on non-GAAP reporting

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