Abstract

http://ssrn.com/abstract=1703684
 
 

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Non-GAAP Earnings and Board Independence


Richard M. Frankel


Washington University in Saint Louis - Olin Business School

Sarah E. McVay


University of Washington

Mark T. Soliman


University of Southern California - Marshall School of Business

October 22, 2010

Review of Accounting Studies, Forthcoming

Abstract:     
We examine the association between board independence and the characteristics of non-GAAP earnings. Our results suggest that companies with less independent boards are more likely to opportunistically exclude recurring items from non-GAAP earnings. Specifically, we find that exclusions from non-GAAP earnings have a greater association with future GAAP earnings and operating earnings when boards contain proportionally fewer independent directors. Consistent with the association between board independence and the permanence of non-GAAP exclusions reflecting opportunism rather than the economics of the firm, we find that the association declines following Regulation G, and that managers appear to use exclusions to meet earnings targets prior to selling their shares more often in firms with fewer independent board members. Overall, our results suggest that board independence is positively associated with the quality of non-GAAP earnings.

Keywords: Non-GAAP Earnings, Board Independence, Voluntary Disclosure, Earnings Quality

JEL Classification: M41, M43, M45, G34, G29, G38

Accepted Paper Series





Not Available For Download

Date posted: November 7, 2010  

Suggested Citation

Frankel, Richard M. and McVay, Sarah E. and Soliman, Mark T., Non-GAAP Earnings and Board Independence (October 22, 2010). Review of Accounting Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1703684

Contact Information

Richard M. Frankel
Washington University in Saint Louis - Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
Sarah E. McVay (Contact Author)
University of Washington ( email )
Box 353200
Seattle, WA 98195-3200
United States
Mark T. Soliman
University of Southern California - Marshall School of Business ( email )
Los Angeles, CA 90089
United States
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