Disclosure Prominence and the Quality of Non-GAAP Earnings

The SEC prohibits the presentation of non-GAAP measures before corresponding GAAP measures; however, a large proportion of non-GAAP reporters present non-GAAP EPS before GAAP EPS in their earnings announcements. This noncompliance raises questions about whether firms use prominence to highlight higher or lower quality non-GAAP information. For firms reporting non-GAAP EPS between 2003 and 2016, prominent non-GAAP EPS is associated with higher quality non-GAAP reporting. Further tests reveal that nonregulatory incentives, rather than regulatory costs, explain this relation. Specifically, prominence is associated with higher quality non-GAAP reporting in settings where prominence is not regulated, investors ignore prominence when non-GAAP reporting quality is lower, and the minority of firms using prominence to mislead exhibit characteristics associated with weaker investor monitoring. Overall, we provide evidence that regulatory noncompliance can reflect an intent to inform, and that most firms use prominence to highlight higher quality non-GAAP information despite prohibitive regulation.

This is the peer reviewed version of the following article: [CHEN, J.V., GEE, K.H., and NEILSON, J.J. (2021). Disclosure Prominence and the Quality of Non‐GAAP Earnings. Journal of Accounting Research 59, 163–213.], which has been published in final form at https://doi.org/10.1111/1475-679x.12344. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions: https://authorservices.wiley.com/author-resources/Journal-Authors/licensing/self-archiving.html#3.

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Work Title Disclosure Prominence and the Quality of Non-GAAP Earnings
Access
Open Access
Creators
  1. JASON V. CHEN
  2. KURT H. GEE
  3. JED J. NEILSON
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. Wiley
Publication Date January 21, 2021
Publisher Identifier (DOI)
  1. 10.1111/1475-679x.12344
Source
  1. Journal of Accounting Research
Deposited January 13, 2022

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  • Added Prominence_SSRN final-1.pdf
  • Added Creator JASON V. CHEN
  • Added Creator KURT H. GEE
  • Added Creator JED J. NEILSON
  • Published
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