Disentangling Managers’ and Analysts’ Non-GAAP Reporting

JEREMIAH W. BENTLEY, THEODORE E. CHRISTENSEN, KURT H. GEE, BENJAMIN C. WHIPPLE

Journal of Accounting Research · 2018 · Volume 56 · Issue 4

Abstract

Researchers frequently proxy for managers’ non-GAAP disclosures using performance metrics available through analyst forecast data providers (FDPs), such as I/B/E/S. The extent to which FDP-provided earnings are a valid proxy for managers’ non-GAAP reporting, however, has been debated extensively. We explore this important question by creating the first large-sample data set of managers’ non-GAAP earnings disclosures, which we directly compare to I/B/E/S data. Although we find a substantial overlap between the two data sets, we also find that they differ in systematic ways because I/B/E/S (1) excludes managers’ lower quality non-GAAP numbers and (2) sometimes provides higher quality non-GAAP measures that managers do not explicitly disclose. Our results indicate that using I/B/E/S to identify managers’ non-GAAP disclosures significantly underestimates the aggressiveness of their reporting choices. We encourage researchers interested in managers’ non-GAAP reporting to use our newly available data set of manager-disclosed non-GAAP metrics because it more accurately captures managers’ reporting choices.

Keywords

M40, M41, M48, non-GAAP earnings, financial analysts, voluntary disclosure, earnings announcements, reporting quality

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