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- Title
The Value Relevance of Mandatory Non- GAAP Earnings.
- Authors
Venter, Elmar R.; Emanuel, David; Cahan, Steven F.
- Abstract
This paper examines the value relevance of earnings components where there is a mandatory requirement to report generally accepted accounting principles ( GAAP) earnings and non- GAAP earnings, and where the items to be eliminated from GAAP earnings are defined in detail. The setting is different from non- GAAP earnings disclosures presented in the United States and elsewhere, where managers have discretion over whether to report a non- GAAP earnings number, and what to exclude from GAAP earnings. Our mandatory setting enables us to report value relevance results that are not confounded by managers' discretionary choices regarding non- GAAP earnings exclusions. We use price-level regressions, based on the Ohlson (1995) model, to test for incremental and relative value relevance. The results show that non- GAAP earnings reported under a mandatory regime have higher value relevance than GAAP earnings. The disaggregation of these items is useful to investors in a setting where managerial motivations are minimized.
- Subjects
ACCOUNTING standards; WAGES; FINANCIAL disclosure; INVESTORS; FINANCIAL statements
- Publication
Abacus, 2014, Vol 50, Issue 1, p1
- ISSN
0001-3072
- Publication type
Article
- DOI
10.1111/abac.12020