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The relation between non-GAAP earnings and accounting restatements: Evidence after regulation G

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  • Shiah-Hou, Shin-Rong

Abstract

Scholarly findings on whether disclosure of Non-GAAP earnings is informative or opportunistic are inconsistent. Since the 2003 implementation of Regulation G, investors can view management's process of adjusting from GAAP earnings to Non-GAAP earnings. This study investigates the information content of Non-GAAP earnings in the context of restatements. The hypotheses of this study are based on the following two propositions. First, the informativeness of Non-GAAP earnings is determined by the nature of items excluded from GAAP earnings to derive Non-GAAP earnings (either nonrecurring special items or recurring exclusions). Second, restatements can be used to distinguish between informative and opportunistic Non-GAAP earnings disclosures. My results show that firms with restatements, especially fraud or core earnings restatements, exhibit greater relative use of Non-GAAP earnings disclosures that adjust GAAP earnings for positive other exclusions (recurring expenses). By contrast, disclosures of Non-GAAP earnings derived by excluding nonrecurring expenses (special items) from GAAP earnings are not associated with restatements.

Suggested Citation

  • Shiah-Hou, Shin-Rong, 2021. "The relation between non-GAAP earnings and accounting restatements: Evidence after regulation G," Advances in accounting, Elsevier, vol. 55(C).
    • Handle: RePEc:eee:advacc:v:55:y:2021:i:c:s0882611021000559
    DOI: 10.1016/j.adiac.2021.100567
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    More about this item

    Keywords

    Non-GAAP earnings; Accounting restatements; Accruals management; Real activities management;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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