Comparing Non-GAAP EPS in Earnings Announcements and Proxy Statements

55 Pages Posted: 22 Oct 2013 Last revised: 19 Nov 2020

See all articles by Dirk E. Black

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy

Ervin L. Black

Steed School of Accounting

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

Kurt H. Gee

The Ohio State University

Date Written: November 18, 2020

Abstract

We compare non-GAAP EPS in annual earnings announcements and proxy statements using hand-collected data from SEC filings. We find that proxies for capital market incentives (contracting incentives) are more highly associated with disclosure of non-GAAP EPS in annual earnings announcements (proxy statements). However, we find systematic differences in the properties of non-GAAP earnings and exclusions depending on whether they disclose non-GAAP EPS in both the earnings announcement and the proxy statement. When firms disclose non-GAAP EPS in both documents, we find that non-GAAP EPS is more useful for assessing firm value. Specifically, these firms are more likely to: (1) Exclude nonrecurring items; (2) Exclude less persistent earnings components; and, (3) Provide less aggressive non-GAAP EPS. Our results suggest that non-GAAP EPS is higher in quality for investors when disclosed in both the annual earnings announcement and the proxy statement. We provide the first large-sample evidence consistent with the use of non GAAP EPS metrics in both financial reporting and compensation contracting.

Keywords: Non-GAAP EPS; contracting; compensation; valuation; value relevance

JEL Classification: G34, M12, M41, M48, M52

Suggested Citation

Black, Dirk E. and Black, Ervin L. and Christensen, Theodore E. and Gee, Kurt H., Comparing Non-GAAP EPS in Earnings Announcements and Proxy Statements (November 18, 2020). Available at SSRN: https://ssrn.com/abstract=2343140 or http://dx.doi.org/10.2139/ssrn.2343140

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Ervin L. Black

Steed School of Accounting ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-2401 (Phone)

Theodore E. Christensen (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

Kurt H. Gee

The Ohio State University ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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