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SEC interventions and the frequency and usefulness of non-GAAP financial measures

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  • Ana Marques

    (Faculdade de Economia da Universidade Nova de Lisboa)

Abstract

This paper examines the effect of two Securities and Exchange Commission regulatory interventions related to disclosure of non-GAAP financial measures. There are three main results. First, the probability of disclosure of non-GAAP earnings declines in 2003, but the probability of disclosure of other non-GAAP financial measures has an accelerated decline after the first intervention. Second, all else equal, after Regulation G, investors have a positive market reaction to the disclosure of non-GAAP earnings. Finally, investors react to the adjustments made by I/B/E/S financial analysts as they do to the GAAP surprise, but they do not react to the additional adjustments made by firms.

Suggested Citation

  • Ana Marques, 2006. "SEC interventions and the frequency and usefulness of non-GAAP financial measures," Review of Accounting Studies, Springer, vol. 11(4), pages 549-574, December.
    • Handle: RePEc:spr:reaccs:v:11:y:2006:i:4:d:10.1007_s11142-006-9016-x
    DOI: 10.1007/s11142-006-9016-x
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    References listed on IDEAS

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    1. Jeffrey T. Doyle & Russell J. Lundholm & Mark T. Soliman, 2003. "The Predictive Value of Expenses Excluded from Pro Forma Earnings," Review of Accounting Studies, Springer, vol. 8(2), pages 145-174, June.
    2. Bhattacharya, Nilabhra & Black, Ervin L. & Christensen, Theodore E. & Larson, Chad R., 2003. "Assessing the relative informativeness and permanence of pro forma earnings and GAAP operating earnings," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 285-319, December.
    3. James Heckman, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    4. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    5. Gu, Zhaoyang & Chen, Ting, 2004. "Analysts' treatment of nonrecurring items in street earnings," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 129-170, December.
    6. Lawrence D. Brown & Kumar Sivakumar, 2003. "Comparing the Value Relevance of Two Operating Income Measures," Review of Accounting Studies, Springer, vol. 8(4), pages 561-572, December.
    7. Mark T. Bradshaw & Richard G. Sloan, 2002. "GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(1), pages 41-66, March.
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    Cited by:

    1. Theodore E. Christensen, 2012. "Discussion of “Why do pro forma and street earnings not reflect changes in GAAP? Evidence from SFAS 123R”," Review of Accounting Studies, Springer, vol. 17(3), pages 563-571, September.
    2. Theodore E. Christensen & Kenneth J. Merkley & Jennifer Wu Tucker & Shankar Venkataraman, 2011. "Do managers use earnings guidance to influence street earnings exclusions?," Review of Accounting Studies, Springer, vol. 16(3), pages 501-527, September.
    3. Richard Frankel & Sarah McVay & Mark Soliman, 2011. "Non-GAAP earnings and board independence," Review of Accounting Studies, Springer, vol. 16(4), pages 719-744, December.
    4. Young-Soo Choi & Stephen Lin & Martin Walker & Steven Young, 2007. "Disagreement over the persistence of earnings components: evidence on the properties of management-specific adjustments to GAAP earnings," Review of Accounting Studies, Springer, vol. 12(4), pages 595-622, December.
    5. Chih-Ying Chen, 2010. "Do analysts and investors fully understand the persistence of the items excluded from Street earnings?," Review of Accounting Studies, Springer, vol. 15(1), pages 32-69, March.
    6. Mark T. Bradshaw, 2011. "A discussion of “Do managers use earnings guidance to influence street earnings exclusions?”," Review of Accounting Studies, Springer, vol. 16(3), pages 528-538, September.

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    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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