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Transitory earnings components and the two faces of non-generally accepted accounting principles earnings

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  • Young-Soo Choi
  • Steven Young
  • Steven Cahan

Abstract

type="main" xml:id="acfi12040-abs-0001"> Non-generally accepted accounting principles (non-GAAP) earnings reporting has been linked with both informative and strategic incentives. We seek to disentangle these conflicting effects by examining the association between non-GAAP earnings disclosure and transitory items in GAAP earnings, conditional on managers' reporting incentives. We report evidence of a statistically and economically significant asymmetric relation between disclosure propensity and transitory items in GAAP earnings conditional on both the sign and magnitude of the GAAP earnings surprise. Our findings suggest that non-GAAP earnings disclosures tend to be driven by a desire for informative (strategic) reporting when GAAP earnings beat (undershoot) market expectations.

Suggested Citation

  • Young-Soo Choi & Steven Young & Steven Cahan, 2015. "Transitory earnings components and the two faces of non-generally accepted accounting principles earnings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(1), pages 75-103, March.
    • Handle: RePEc:bla:acctfi:v:55:y:2015:i:1:p:75-103
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    File URL: http://hdl.handle.net/10.1111/acfi.2015.55.issue-1
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    Citations

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    Cited by:

    1. Theodore E. Christensen & Hang Pei & Spencer R. Pierce & Liang Tan, 2019. "Non-GAAP reporting following debt covenant violations," Review of Accounting Studies, Springer, vol. 24(2), pages 629-664, June.
    2. 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).
    3. Claudia Arena & Simona Catuogno & Nicola Moscariello, 2021. "The unusual debate on non-GAAP reporting in the current standard practice. The lens of corporate governance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(3), pages 655-684, September.
    4. Corinne Bessieux-Ollier & Grégoire Davrinche & Guillaume Dumas, 2022. "L'adaptation de la communication financière face à la crise COVID : le cas des résultats non-GAAP," Post-Print hal-03948560, HAL.
    5. Visani, Franco & Di Lascio, F. Marta L. & Gardini, Silvia, 2020. "The impact of institutional and cultural factors on the use of non-GAAP financial measures. International evidence from the oil and gas industry," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 40(C).
    6. Grégoire Davrinche & Guillaume Dumas & Isabelle Martinez, 2017. "Résultats non-GAAP et opportunisme des dirigeants," Post-Print hal-03948521, HAL.
    7. Charitou, Andreas & Floropoulos, Nikolaos & Karamanou, Irene & Loizides, George, 2018. "Non-GAAP Earnings Disclosures on the Face of the Income Statement by UK Firms: The Effect on Market Liquidity," The International Journal of Accounting, Elsevier, vol. 53(3), pages 183-202.
    8. Corinne Bessieux-Ollier & Grégoire Davrinche & Guillaume Dumas, 2022. "L'adaptation de la communication financière face à la crise COVID : le cas des résultats non-GAAP," Post-Print hal-03948567, HAL.
    9. Mark Brosnan & Keith Duncan & Tim Hasso & Janice Hollindale, 2023. "Non‐GAAP earnings and executive compensation: An experiment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4375-4398, December.
    10. Robert Kim, 2023. "Do more able managers provide better non‐GAAP earnings?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 1983-2012, June.
    11. Stewart Jones & Nurul Alam, 2019. "A machine learning analysis of citation impact among selected Pacific Basin journals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(4), pages 2509-2552, December.

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