The Joint Effects of Corporate Governance and Regulation on the Disclosure of Manager-Adjusted Non-GAAP Earnings in the US

Authors

  • Ross Jennings,

    1. The authors are respectively from the University of Texas at Austin and the Universidade Nova de Lisboa. They appreciate the valuable comments received at the 2006 AAA annual meeting, the 2007 EAA annual meeting, the Lubrafin 2009 annual meeting and the 2010 JBFA conference. This paper has also benefited from the comments of Ted Christensen, an anonymous referee, the editors and the workshop participants at the University of Texas at Austin, Lancaster University, and Instituto de Empresa. The authors appreciate the research assistance of Brian Bratten and Laura Wang. Ross Jennings gratefully acknowledges the financial support of PricewaterhouseCoopers and the McCombs School of Business. Ana Marques gratefully acknowledges the financial support of the Foundation for Science and Technology (PTDC/ECO/72021/2006) and a Marie Curie International Reintegration Grant within the 6th European Community Framework Program. This paper was previously titled ‘The impact of corporate governance on the disclosure of manager-adjusted non-GAAP earnings.’
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  • Ana Marques

    Corresponding author
    1. The authors are respectively from the University of Texas at Austin and the Universidade Nova de Lisboa. They appreciate the valuable comments received at the 2006 AAA annual meeting, the 2007 EAA annual meeting, the Lubrafin 2009 annual meeting and the 2010 JBFA conference. This paper has also benefited from the comments of Ted Christensen, an anonymous referee, the editors and the workshop participants at the University of Texas at Austin, Lancaster University, and Instituto de Empresa. The authors appreciate the research assistance of Brian Bratten and Laura Wang. Ross Jennings gratefully acknowledges the financial support of PricewaterhouseCoopers and the McCombs School of Business. Ana Marques gratefully acknowledges the financial support of the Foundation for Science and Technology (PTDC/ECO/72021/2006) and a Marie Curie International Reintegration Grant within the 6th European Community Framework Program. This paper was previously titled ‘The impact of corporate governance on the disclosure of manager-adjusted non-GAAP earnings.’
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Address for correspondence: Ana Marques, Faculdade de Economia, Universidade Nova de Lisboa, Campus de Campolide, 1099-032 Lisboa, Portugal. e-mail: ana_marques@fe.unl.pt

Abstract

Abstract:  This paper examines the joint effects of corporate governance and regulation by the Securities and Exchange Commission on the disclosure of manager-adjusted non-GAAP (or pro forma) earnings numbers in the United States. We provide evidence that prior to Regulation G investors were misled by disclosures of non-GAAP earnings, but only for disclosures made by firms with weaker corporate governance. After the SEC intervention there is no evidence that investors were still being misled. Furthermore, the effect of the intervention applied to both adjustments that are ex ante recurring as well as to adjustments that just meet or beat analysts’ forecasts.

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