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Disclosure regulations work: The case of regulation G

Author

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  • Yu-An Chen

    (Rutgers Business School)

  • Ann F. Medinets

    (Rutgers Business School)

  • Dan Palmon

    (Rutgers Business School)

Abstract

Regulators and standard setters strive to enhance the transparency of corporate disclosures. To address concerns regarding the improper use of non-GAAP financial measures, the US Securities and Exchange Commission (SEC) implemented Regulation G and related amendments in 2003. US firms that report non-GAAP earnings must now reconcile them with the most directly comparable GAAP earnings, which are presented with equal or greater prominence than non-GAAP earnings. This paper examines the effect of Regulation G on analysts’ information environment for non-GAAP reporting firms. Before Regulation G, non-GAAP earnings reporting is associated with less accurate, more positively biased, and more dispersed analysts’ earnings forecasts. By contrast, the quality of analysts’ earnings forecasts for non-GAAP reporting firms is enhanced by higher accuracy, less bias, and lower dispersion after Regulation G. The case for Regulation G making non-GAAP disclosures more transparent may be relevant for regulators and standard setters when considering future disclosure regulations.

Suggested Citation

  • Yu-An Chen & Ann F. Medinets & Dan Palmon, 2022. "Disclosure regulations work: The case of regulation G," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 1037-1062, April.
    • Handle: RePEc:kap:rqfnac:v:58:y:2022:i:3:d:10.1007_s11156-021-01017-9
    DOI: 10.1007/s11156-021-01017-9
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    1. Huai-Chun Lo & Chia-Ying Chan, 2023. "Mean reverting in stock ratings distribution," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 1065-1097, April.

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    More about this item

    Keywords

    Non-GAAP earnings; Regulation G; Information environment; Financial analyst;
    All these keywords.

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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