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The purpose of this paper is to investigate whether formally disclosing an earnings before interests, taxes, depreciation, and amortization (EBITDA) number reduces the information asymmetry between managers and investors beyond the release of GAAP earnings. The paper also assess if EBITDA disclosure enhances the value relevance and the predictive ability of earnings.

The authors explore the interface between GAAP and non-GAAP reporting as well as the impact of corporate governance on the quality of non-GAAP measures.

Results suggest that EBITDA reporting is associated with greater analyst following and with less information asymmetry. The authors also document that EBITDA reporting enhances the positive relationship between earnings and stock pricing as well as future cash flows. Moreover, it appears that corporate governance substitutes for EBITDA reporting for stock markets. Hence, EBITDA helps market participants to better assess earnings valuation when a firm’s governance is weak. Inversely, when governance is strong, releasing EBITDA information has a much smaller impact on the earnings-stock price relation.

The authors revisit the issue of how corporate governance relates with earnings quality by considering the potentially confounding effect of EBITDA reporting; it appears that such reporting substitutes for governance in moderating the relation between governance and earnings quality.

This study aims to examine whether the newly available auditor tenure information is associated with non-GAAP earnings, as the recent requirement to disclose the initial year of auditor-client relationship in audit reports may give the impression that longer auditor tenure may be related to lower audit quality.

Using a sample of firm-quarters from 2017 to 2020, the authors conduct both univariate and regression analyses. We use hand-collected data for auditor tenure, SEC comment letters, and non-GAAP variables.

First, the authors find that the likelihood of disclosing non-GAAP earnings monotonically increases with auditor tenure on a univariate basis. Second, auditor tenure is negatively associated with aggressive non-GAAP reporting. Third, the authors document evidence of aggressive reporting in general; that is, items excluded in calculating non-GAAP earnings are associated with future performance. However, the association declines with longer auditor tenure. Finally, the authors report evidence that the likelihood of receiving an SEC comment letter that contains non-GAAP comments decreases with longer auditor tenure.

The results show that regulators need to consider both GAAP and non-GAAP disclosures’ costs and benefits when enacting auditor tenure regulation. Investors can benefit from the findings in evaluating the quality of non-GAAP earnings. The findings are also relevant to the SEC when allocating limited resources in monitoring non-GAAP reporting.

To the best of the authors’ knowledge, this is the first study showing that auditor tenure is associated with the quality of non-GAAP earnings. Given that financial reporting quality should be understood as a comprehensive system comprising both mandatory and voluntary disclosures, this study complements the literature that examines the effect of auditor tenure on financial reporting quality using GAAP reporting.

This study aims to assess if the voluntary reporting of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), a widely used non-generally accepted accounting principles (GAAP) measure, has effects on information asymmetry and value relevance and how the adjustments to GAAP earnings made to derive it contribute to these effects. This study focuses on firms from two countries with contrasting institutional settings, Canada and France.

Relying on multivariate analyses and using Heckman’s procedure to address the sample self-selection issue, this study first estimates the likelihood of a firm to report adjusted EBITDA. Then, this study examines if adjusted EBITDA, as well as the adjustments made to GAAP earnings to derive adjusted EBITDA (adjustments), affect a firm’s information asymmetry and its value. These adjustments are essentially GAAP-grounded items that are discarded by management to derive non-GAAP adjusted EBITDA. The dependent variables are share price volatility, as a proxy for information asymmetry, alongside market-to-book and stock market return as indicators of value.

In terms of the used sample, results suggest that Canadian firms are much more likely to report adjusted EBITDA than French firms. Chief executive officer (CEO) attributes (CEO power) appears to increase such likelihood. Moreover, for both Canadian and French firms, adjusted EBITDA is associated with reduced stock market volatility, an indication of lower information asymmetry, as well as higher market-to-book and returns, suggesting value relevance. The results also indicate that investors view the adjustments to GAAP earnings made by management to derive adjusted EBITDA as not value relevant (similar to noise). The GAAP-grounded elements that management discard to derive adjusted EBITDA actually increase information asymmetry.

This study adds to prior research on the interface between a CEO attributes and governance and non-GAAP reporting. This study also provides evidence that, despite very different institutional settings, non-GAAP reporting conveys relevant information to capital markets’ participants in both France and Canada. Hence, a country’s institutional setting may have a differential impact on the disclosure choice but not on the resulting value relevance of such disclosure. Finally, this study extends the non-GAAP literature by examining the value relevance of a widely used yet under-researched measure, adjusted EBITDA.

It has been two decades since the first academic paper shone a spotlight on non-GAAP earnings. The past 20 years of research investigates concerns over the misuse of these disclosures and resulted in some significant changes to accounting and reporting standards across the globe. This paper aims to document the history of non-GAAP reporting and outline the emerging themes of the now matured practice of non-GAAP reporting.

This systematic literature review searches two popular databases to identify the academic publications relating to non-GAAP reporting between 2002 and 2022. The paper uses bibliographic mapping to present the key statistics of the non-GAAP reporting field of research.

The non-GAAP reporting environment started out as the “wild West’ but, through regulation and public awareness, emerged as an important supplement to the traditional outputs of financial reporting. Current consensus is recent non-GAAP earnings are informative to users but there is lack of research into qualitative non-GAAP disclosures and the vast body of archival research needs triangulating with more experimental studies.

This paper contributes to the literature by documenting the past 20 years of non-GAAP reporting and identifying the important existing and emerging research areas concerning non-GAAP earnings disclosures.

The purpose of this study is to examine whether non-generally accepted accounting principles (GAAP) earnings disclosed by firms headquartered in high religious areas (religious firms) are more informative. The non-GAAP disclosure is voluntary and not subject to external audits, and it is difficult to verify the accuracy ex post, which provides management with incentives to strategically use non-GAAP reporting. This study examines religiosity as a potential governance mechanism that reduces management opportunism.

Using a comprehensive sample from 2010 to 2018, the authors conduct univariate analyses and regression tests. Religiosity is measured by the number of religious adherents in the Metropolitan Statistical Areas of a firm’s headquarter location.

This study finds that religious firms disclose non-GAAP earnings more frequently compared to non-religious firms. This study further documents that religiosity is negatively associated with aggressive non-GAAP reporting. It also finds that items excluded by religious firms in calculating non-GAAP earnings are less associated with future performance, suggesting that these excluded items are transient and, thus, of higher quality. Finally, the market returns on unexpected non-GAAP earnings (i.e. earnings response coefficients) are greater for religious firms. Overall, the results of this study show that non-GAAP reporting by religious firms is more likely to be informative rather than opportunistic.

Despite the authors’ best endeavors, this study does not fully address the issue of endogeneity, and therefore, the results of this study must be interpreted as strong association rather than causation.

Religious social norms (regional level) can complement a firm’s corporate governance and ethical codes (firm level) by attenuating undesirable, opportunistic management practices. These findings should be informative to investors who assess the quality non-GAAP disclosures. The findings of this study are also relevant to regulators [e.g. the Securities and Exchange Commission (SEC)] when they allocate limited resources. The SEC may use less resources for monitoring firms headquartered in religious areas and apply the saved resources on monitoring riskier firms.

To the best of the authors’ knowledge, this is the first study to show that religiosity may act as a potential monitoring mechanism that attenuates aggressive non-GAAP earnings and enhances the informativeness of non-GAAP. The findings of this study suggest that religious social norms (regional level) can complement a firm’s corporate governance and ethical codes (firm level) by restricting undesirable, opportunistic management practices.

This paper aims to examine motivations for the reporting of generally accepted accounting practice (GAAP)-adjusted earnings by New Zealand companies.

The study uses multivariate analysis of data from New Zealand company annual reports for the period from 2004 to 2012.

Evidence suggests that management of some New Zealand firms are motivated to use GAAP-adjusted earnings to provide a more favourable impression of earnings. However, across firms, these adjusted earnings provide a better predictor of future earnings and provide more value-relevant information to the market than GAAP earnings. Thus, a desire to disclose a more accurate indicator of permanent earnings appears to be a strong factor in the reporting of GAAP-adjusted earnings.

The study uses firms listed on the New Zealand share market. The number of firms examined is small, but we compensate by studying the entire population, thus avoiding sampling issues. The results suggest that New Zealand’s regulatory response of recommending guidelines for reporting alternative earnings measures is appropriate.

The study contributes to the literature on the relationship between reporting statutory earnings and non-GAAP earnings. It uses a period that includes three major events in the New Zealand economy and reporting environment: the adoption of international financial reporting standards, a change in tax law and the global financial crisis. Recognition of these events allows us to better interpret the GAAP-adjusted reporting practices taken by managers.

The purpose of this paper is to synthesize insights from existing research on the disclosure of non-generally accepted accounting principles (GAAP) earnings, from an international point of view, and to suggest several avenues for future research in this area.

In conjunction with the analysis of existing research, the paper examines how different regulators and accounting standard setters have approached the topic of non-GAAP earnings disclosure.

The paper shows how non-GAAP earnings have been found to be more informative than GAAP earnings in several scenarios (countries where non-GAAP disclosures are compulsory, countries where these disclosures are voluntary but regulated and countries where they are not regulated). However, in certain circumstances, these disclosures may also mislead investors. Corporate governance mechanisms can curb managers’ opportunistic use of these measures.

The paper provides the growing number of academic researchers in this emerging area with a foundation and agenda upon which they can build their research.

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 (privacyrights.org) 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.

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.

The purpose of this paper is empirically investigate the pro forma disclosure behavior of US-listed foreign firms applying International Financial Reporting Standards (IFRS).

The annual earnings press releases of US-listed foreign firms on the New York Stock Exchange are analyzed to compare the effect that reporting standard (specifically IFRS) has on pro forma disclosure frequency, disclosure characteristics and benchmarking.

US-listed foreign firms applying IFRS report pro forma disclosures more frequently than firms using the USA’s generally accepted accounting principles (GAAP), but less opportunistically.

This paper extends Epping and Wilder’s (2011) study and contributes to the pro forma disclosure literature by providing a cross-country analysis of non-GAAP disclosure based on reporting standard (IFRS or US GAAP). Understanding the non-GAAP disclosure of firms applying IFRS is useful to investors and regulators, as more countries adopt IFRS.

This paper aims to identify and explain the composition, determinants, relevance and effects of underlying profit and emphasis placed on underlying profit in annual reports.

The paper uses multivariate analysis of data from New Zealand listed companies from 2006 to 2010 disclosing both generally accepted accounting principles (GAAP) profit and underlying profit. Value relevance is measured in relation to annual stock returns of companies.

Tax, financial cost and depreciation and amortization are the three main items excluded from GAAP profit to derive underlying profit. Firms that have lower audit quality and industries prone to higher price fluctuation of assets and higher depreciation and amortization expenses use underlying profit. Also, underlying profit is used by firms with higher differences between statutory and target profits, higher analyst following and higher proportion of independent board of directors. Underlying profit has a weak negative association with annual market returns and significant positive association with volume of shares traded. Finally, the relevance of underlying profit is lower for firms that emphasize underlying profit in their annual reports.

Underlying profit is negatively related to the economic performance of the company in the market, whereas GAAP profit is positively related.

New Zealand has experienced a sharp increase in the use of underlying profits in annual reports. This research adds to our understanding of the use of underlying profit by New Zealand listed companies.