Transitory earnings components and the two faces of non‐generally accepted accounting principles earnings |
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| Authors: | Young‐Soo Choi Steven Young |
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| Affiliation: | 1. Accounting Section, School of Business, Sungkyunkwan University, Seoul, Korea;2. Department of Accounting and Finance, Lancaster University Management School, Lancaster University, Lancaster, UK |
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| Abstract: | Non‐generally accepted accounting principles (non‐GAAP) earnings reporting has been linked with both informative and strategic incentives. We seek to disentangle these conflicting effects by examining the association between non‐GAAP earnings disclosure and transitory items in GAAP earnings, conditional on managers' reporting incentives. We report evidence of a statistically and economically significant asymmetric relation between disclosure propensity and transitory items in GAAP earnings conditional on both the sign and magnitude of the GAAP earnings surprise. Our findings suggest that non‐GAAP earnings disclosures tend to be driven by a desire for informative (strategic) reporting when GAAP earnings beat (undershoot) market expectations. |
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| Keywords: | Earnings thresholds Financial Reporting Standard No 3 Non‐GAAP (pro forma) earnings Transitory items |
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