Market reaction to Non-GAAP Earnings around SEC regulation

Publication Type:
Journal Article
Journal of Contemporary Accounting and Economics, 2017, 13 (3), pp. 193 - 208
Issue Date:
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This study examines the impact of Regulation G in 2003 and the issuance of Compliance and Disclosure Interpretations (C&DIs) in 2010 – on the reporting of non-GAAP earnings. The study finds that (i) both Regulation G and C&DIs are associated with an increase in the quality of non-GAAP earnings exclusions (i.e. the exclusions are more transitory and have less predictive power for future operating earnings). (ii) Regulation G led to a decrease in the amount of total positive exclusions used to meet or beat analysts’ forecasts, but C&DIs partially reversed this result. (iii) Regulation G increases, and C&DIs decrease, the earnings response coefficients (ERCs).
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