Comparing Non-GAAP EPS in Earnings Announcements and Proxy Statements
55 Pages Posted: 22 Oct 2013 Last revised: 19 Nov 2020
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: Suggested Citation