NDLI: Pro forma earnings disclosure: the effects of non-GAAP earnings and earnings-before on investors’ information processing

Content Provider	Springer Nature Link
Author	Reimsbach, Daniel
Copyright Year	2013
Abstract	Research on pro forma earnings disclosure usually does not distinguish between different types of pro forma earnings. However, non-GAAP earnings and earnings-before (EB) metrics such as the EBIT fit the conventional perception of pro forma earnings but offer varying degrees of flexibility to management in pursuing strategic reporting motives. This study presents the results of an experiment that builds upon Maines and McDaniel’s (Account Rev 75(2):179–207, 2000) framework and analyzes if variations in the use and combination of pro forma earnings information affect whether nonprofessional investors acquire (pro forma) earnings information, and how this information is evaluated, and weighted when making investment-related judgments. Our results indicate that a “pure” non-GAAP disclosure increases investors’ evaluation of a company’s earnings performance compared to all other reporting strategies. However, we also find that nonprofessional investors consider non-GAAP information strategically motivated and thus weight it less heavily in arriving at investment-related judgments. Overall, we find that investors’ judgments (i.e., the overall favorability of the earnings announcement and the company’s attractiveness as an investment) are highest when the earnings press release contains the non-GAAP earnings and the EB measure. This has important implications for behavioral accounting theory as well as corporate practice and policy-making.
Starting Page	479
Ending Page	515
Page Count	37
File Format	PDF
ISSN	00442372
Journal	Zeitschrift für Betriebswirtschaft
Volume Number	84
Issue Number	4
e-ISSN	18618928
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2013-08-20
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Pro forma earnings Non-GAAP earnings Earnings before Nonprofessional investors Experiment Business/Management Science Production/Logistics/Supply Chain Organization/Planning Human Resource Management Accounting/Auditing Business Taxation/Tax Law
Content Type	Text
Resource Type	Article
Subject	Business and International Management Economics and Econometrics

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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