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Non-GAAP earnings quality in firms with data breach incident

Dongfang Nie (College of Business, The University of Texas Permian Basin, Odessa, Texas, USA)
Chunhao Xu (College of Business, The University of Texas Permian Basin, Odessa, Texas, USA)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 6 August 2021

Issue publication date: 13 August 2021




After the massive data breach incident in 2017, Equifax voluntarily disclosed non-GAAP earnings that beat earnings targets by eliminating breach-related charges and used non-GAAP metrics to determine its executives' compensations. However, it is unclear whether its non-GAAP earnings exclusions and the use of non-GAAP earnings in compensation plans are justified. The purpose of this study is to examine non-GAAP earnings quality in firms with data breach incidents.


The authors identified data breach firms from incidents reported in Privacy Rights Clearinghouse ( during the period 2004–2017. The authors separate the victim firms into six groups based on financial status and non-GAAP earnings disclosure. Quarterly manager non-GAAP earnings per share data is retrieved from the database created by Bentley et al. (2018). Ordinary linear regression models are used in this study to test the authors’ hypothesis.


The authors find that, in general, the informativeness of non-GAAP earnings is higher than that of GAAP earnings in data breach firms. However, non-GAAP earnings quality vary in data breach firms with different financial health status. The quality of non-GAAP earnings in loss firms with data breach is higher than those in profit firms. Loss converters (i.e. data breach firms with negative GAAP earnings but positive non-GAAP earnings) disclose low quality non-GAAP earnings, which is different from the findings in prior studies.

Practical implications

The findings are particularly useful to analysts who want to make accurate earnings forecasts of data breach firms by incorporating managers' non-GAAP earnings disclosures.


The authors are among the first to comprehensively analyze the quality of non-GAAP earnings in firms with data breaches. The findings in this study address the analysts' concern that data breach firms use non-GAAP earnings metrics to determine executives' compensation after the massive data breach incidents. Next, the authors provide evidence that the financial status of data breach firms affects the quality of non-GAAP earnings.



Nie, D. and Xu, C. (2021), "Non-GAAP earnings quality in firms with data breach incident", Asian Review of Accounting, Vol. 29 No. 3, pp. 383-398.



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