A Decade Later: The Changing Landscape of Non-GAAP Reporting

SYNOPSIS

We provide evidence on recent trends in managers’ non-GAAP reporting. First, the rapid increase in non-GAAP earnings disclosures identified in prior research has leveled off in recent years. Moreover, managers are more likely to provide these non-GAAP metrics in concert with analysts, and instances in which only managers report non-GAAP metrics have declined. Managers exclude both nonrecurring and recurring items more frequently in the recent decade, and the magnitude of their recurring item exclusions has dramatically increased. Finally, we find that exclusion persistence has increased in the recent decade and is significant, regardless of whether or not analysts corroborate managers’ metrics. We also find that the lowest quality non-GAAP reporting still occurs when managers report non-GAAP earnings while analysts do not. It is important to recognize, however, that non-GAAP earnings remain considerably more persistent than non-GAAP exclusions, suggesting that non-GAAP earnings still provide meaningful information about core performance.

Data Availability: Data are available from the public sources cited in the text.

JEL Classifications: M40; M41; M48.