The Determinants and Informativeness of Non-GAAP Revenue Disclosures

Nearly all research on non-GAAP measures focuses on earnings or earnings per share. Disclosure of non-GAAP revenue has recently attracted SEC scrutiny. Because revenue, unlike earnings, is a top-line number related primarily to core (i.e., persistent) business activities, it is unclear what adjustments could provide a more useful measure of performance. We present the first archival analysis of non-GAAP revenues based on a large, hand-collected sample of disclosures from 2015- 2018. Approximately one in five earnings announcements contains a non-GAAP revenue disclosure, focused on revenue growth. Our evidence suggests that firms disclose non-GAAP revenue when GAAP revenue is incomparable with prior periods, and not to compensate for poor GAAP performance. Furthermore, non-GAAP revenue growth predicts future revenue growth better than GAAP revenue growth, and the market responds to this information. Overall, nonGAAP revenue disclosures are motivated by economic fundamentals rather than opportunism, on average, and they provide investors with relevant information.

This is the accepted manuscript version of the following article: John L Campbell, Kurt H Gee, and Zac Wiebe, "The Determinants and Informativeness of Non-GAAP Revenue Disclosures," The Accounting Review, February 15, 2022, https://doi.org/10.2308/TAR-2020-0466.

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Work Title The Determinants and Informativeness of Non-GAAP Revenue Disclosures
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Open Access
Creators
  1. John L Campbell
  2. Kurt H Gee
  3. Zac Wiebe
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. American Accounting Association
Publication Date February 15, 2022
Publisher Identifier (DOI)
  1. 10.2308/tar-2020-0466
Source
  1. The Accounting Review
Deposited September 23, 2022

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  • Added Creator Kurt H Gee
  • Added Creator Zac Wiebe
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    Description
    • <jats:p>Nearly all research on non-GAAP financial measures focuses on earnings or earnings per share, although non-GAAP revenue disclosure has recently attracted SEC scrutiny. It is unclear ex ante what non-GAAP adjustments could improve revenue’s usefulness because, unlike earnings, revenue is a top-line number related primarily to core (i.e., persistent) business activities. We present the first archival analysis of non-GAAP revenues based on a large, hand-collected sample of disclosures from 2015-2018. Approximately one in five earnings announcements contains a non-GAAP revenue disclosure, focused on revenue growth. Our evidence suggests that firms disclose non-GAAP revenue when GAAP revenue is incomparable with prior periods, and not to compensate for poor GAAP performance. Furthermore, non-GAAP revenue growth predicts future revenue growth better than GAAP revenue growth, and the market responds to this information. Overall, non-GAAP revenue disclosures are motivated by economic fundamentals rather than opportunism, on average, and they provide investors with relevant information.</jats:p>
    • Nearly all research on non-GAAP measures focuses on earnings or earnings per share. Disclosure
    • of non-GAAP revenue has recently attracted SEC scrutiny. Because revenue, unlike earnings, is a
    • top-line number related primarily to core (i.e., persistent) business activities, it is unclear what
    • adjustments could provide a more useful measure of performance. We present the first archival
    • analysis of non-GAAP revenues based on a large, hand-collected sample of disclosures from 2015-
    • 2018. Approximately one in five earnings announcements contains a non-GAAP revenue
    • disclosure, focused on revenue growth. Our evidence suggests that firms disclose non-GAAP
    • revenue when GAAP revenue is incomparable with prior periods, and not to compensate for poor
    • GAAP performance. Furthermore, non-GAAP revenue growth predicts future revenue growth
    • better than GAAP revenue growth, and the market responds to this information. Overall, nonGAAP revenue disclosures are motivated by economic fundamentals rather than opportunism, on
    • average, and they provide investors with relevant information.
  • Updated