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Beyond Earnings: Do EBITDA Reporting and Governance Matter for MarketParticipants?

Author

Listed:
  • Denis Cormier

    (CIFO - Chaire d?information financière et organisationnelle - ESG)

  • Michel Magnan
  • Samira Demaria

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique)

Abstract

Purpose – In this paper, we investigate whether formally disclosing an EBITDA number reduces the information asymmetry between managers and investors beyond the release of GAAP earnings. We also assess if EBITDA disclosure enhances the value relevance and the predictive ability of earnings. Design/methodology/approach – We explore the interface between GAAP and non-GAAP reporting as well as the impact of corporate governance on the quality of non-GAAP measures. Findings – Results suggest that EBITDA reporting is associated with greater analyst following and with less information asymmetry. We also document that EBITDA reporting enhances the positive relationship between earnings and stock pricing as well as future cash flows. Moreover, it appears that corporate governance substitutes for EBITDA reporting for stock markets. Hence, EBITDA helps market participants to better assess earnings valuation when a firm's governance is weak. Inversely, when governance is strong, releasing EBITDA information has a much smaller impact on the earnings-stock price relation. Originality/value – We revisit the issue of how corporate governance relates with earnings quality by considering the potentially confounding effect of EBITDA reporting: it appears that such reporting substitutes for governance in moderating the relation between governance and earnings quality.

Suggested Citation

  • Denis Cormier & Michel Magnan & Samira Demaria, 2017. "Beyond Earnings: Do EBITDA Reporting and Governance Matter for MarketParticipants?," Post-Print halshs-01430191, HAL.
    • Handle: RePEc:hal:journl:halshs-01430191
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    Citations

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    Cited by:

    1. Tiep, Nguyen Cong & Wang, Mengqi & Mohsin, Muhammad & Kamran, Hafiz Waqas & Yazdi, Farzaneh Ahmadian, 2021. "An assessment of power sector reforms and utility performance to strengthen consumer self-confidence towards private investment," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 676-689.
    2. Ines Kahloul & Jocelyn Grira & Khawla Hlel, 2023. "The trilogy of economic policy uncertainty, earnings management and firm performance: empirical evidence from France," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(1), pages 184-206, March.
    3. Irina I. Smotritskaya & Nadezhda D. Frolova, 2023. "Insider ownership and performance of Russian public companies: Econometric estimates," Upravlenets, Ural State University of Economics, vol. 14(3), pages 2-16, July.
    4. 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.
    5. Hasan Yalçın, 2024. "Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA," Muhasebe Enstitusu Dergisi - Journal of Accounting Institute, Istanbul University Business School, vol. 0(70), pages 39-57, January.
    6. Climent-Serrano, Salvador & Bustos-Contell, Elisabeth & Labatut-Serer, Gregorio & Rey-Martí, Andrea, 2018. "Low-cost trends in audit fees and their impact on service quality," Journal of Business Research, Elsevier, vol. 89(C), pages 345-350.
    7. Sascha B. Herr & Peter Lorson & Jochen Pilhofer, 2022. "Alternative Performance Measures: A Structured Literature Review of Research in Academic and Professional Journals," Schmalenbach Journal of Business Research, Springer, vol. 74(3), pages 389-451, September.

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