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Buffering or Backfiring? Non-GAAP Reporting and Investor Reactions to Material GAAP Restatements

Author

Listed:
  • Theodore E. Christensen

    (University of Georgia, Terry College of Business)

  • Jens Mueller

    (Paderborn University)

  • Soenke Sievers

    (Paderborn University)

  • Christian Sofilkanitsch

    (Nazarbayev University, Graduate School of Business)

Abstract

We examine whether ex ante non-GAAP reporting moderates short-window market reactions to material GAAP restatements. Based on a sample of 1,619 U.S. restatements from 2003-2021, we find that firms reporting non-GAAP earnings in the pre-restatement quarter experience significantly less negative three-day abnormal returns around restatement announcements than GAAP-only reporters, consistent with a buffering effect. However, this effect is conditional on managers' prior non-GAAP reporting choices. High-quality non-GAAP reporting is associated with attenuated market penalties. In contrast, firms with aggressive non-GAAP reporting face more negative reactions than GAAP-only reporters - especially for revenue-related and Form 8-K restatements. Complementary evidence based on bid-ask spreads and analyst forecast revisions indicates that non-GAAP reporting tempers both information risk and cash flow revisions. Overall, our results highlight the dual role of non-GAAP disclosures as either credibility buffers or amplifiers when GAAP reporting integrity is called into question.

Suggested Citation

  • Theodore E. Christensen & Jens Mueller & Soenke Sievers & Christian Sofilkanitsch, 2026. "Buffering or Backfiring? Non-GAAP Reporting and Investor Reactions to Material GAAP Restatements," Working Papers 2026/04, Nazarbayev University, Graduate School of Business.
    • Handle: RePEc:asx:nugsbw:2026-04
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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