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The determinants of voluntary disclosure of adjusted earnings per share measures by UK quoted companies

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  • Martin Walker
  • Evagelia Louvari

Abstract

This study describes and explains the variety of disclosure practices employed by UK companies to report earnings per share measures following the introduction of FRS3. In addition to describing the practices of UK companies we construct an econometric model designed to explain the observed variation in the willingness of firms to disclose additional earnings per share measures. We conclude that the willingness of firms to disclose alternative earnings per share measures is driven by two main types of considerations. First, the general disclosure stance of the company: firms that generally exhibit high levels of disclosure are more likely to disclose alternative earnings per share measures. Second, except for firms in loss situations, firms generally appear to be motivated to present a more favourable earnings profile. Firms in loss situations seem to be concerned to divert investor attention away from reported losses either by reporting an alternative EPS that is positive when FRS3 EPS is negative, or by failing to report a negative alternative EPS when FRS3 EPS is positive. We find that the likelihood of a firm disclosing losses under FRS3 reporting a lower loss per share, is much smaller than the likelihood of a firm reporting profits under FRS3 reporting a higher alternative profit per share, perhaps because managers fear any alternative figure will be interpreted by the market as a measure of sustainable earnings. This finding is consistent with management not wanting to create the impression that a current loss is likely to be sustained.

Suggested Citation

  • Martin Walker & Evagelia Louvari, 2003. "The determinants of voluntary disclosure of adjusted earnings per share measures by UK quoted companies," Accounting and Business Research, Taylor & Francis Journals, vol. 33(4), pages 295-309.
  • Handle: RePEc:taf:acctbr:v:33:y:2003:i:4:p:295-309
    DOI: 10.1080/00014788.2003.9729655
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    Cited by:

    1. 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).
    2. Marques, Ana, 2010. "Disclosure strategies among S&P 500 firms: Evidence on the disclosure of non-GAAP financial measures and financial statements in earnings press releases," The British Accounting Review, Elsevier, vol. 42(2), pages 119-131.
    3. Grey, Colette & Stathopoulos, Konstantinos & Walker, Martin, 2013. "The impact of executive pay on the disclosure of alternative earnings per share figures," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 227-236.
    4. Gaelle Lenormand & Hoang Nguyen & Lionel Touchais, 2023. "The information content of alternative performance measures in the European context [Le contenu informationnel des indicateurs alternatifs de performance dans le contexte européen]," Post-Print hal-04672673, HAL.
    5. 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.
    6. Steven Young, 2014. "The drivers, consequences and policy implications of non-GAAP earnings reporting," Accounting and Business Research, Taylor & Francis Journals, vol. 44(4), pages 444-465, August.
    7. Sophie Audousset-Coulier, 2008. "Les déterminants de la publication volontaire des honoraires d'audit par les sociétés cotées françaises en 2002 et 2003," Post-Print halshs-00522305, HAL.
    8. Silvia Gardini & F. Marta L. Di Lascio & Franco Visani, 2017. "Opportunism in disclosing pro-forma indicators: rationale and contextual drivers," BEMPS - Bozen Economics & Management Paper Series BEMPS42, Faculty of Economics and Management at the Free University of Bozen.
    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. Athanasakou, Vasiliki & Strong, Norman & Walker, Martin, 2010. "The association between classificatory and inter-temporal smoothing: Evidence from the UK's FRS 3," The International Journal of Accounting, Elsevier, vol. 45(2), pages 224-257, June.

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