Impression Management and Non-GAAP Reporting in Earnings Announcements

Abstract:     
This paper analyzes whether managers combine two mechanisms capable of influencing investors’ judgments in earnings announcements. Specifically, we study whether managers use impression management techniques to emphasize non-GAAP earnings measures when announcing annual results. The study is carried out on an international sample of European countries, during 2003-2005. The method used is manual content analysis. We find evidence that managers use impression management techniques as a complement to the disclosure of non-GAAP earnings measures. Furthermore, our analysis of market reactions indicates that although investors recognize that non-GAAP earnings measures have information content they penalize firms that present these figures in combination with impression management techniques. Thus, investors seem to perceive the use of impression management to enhance non-GAAP figures as an opportunistic strategy and consequently inflict a penalty for this self-serving behavior.

Number of Pages in PDF File: 42

Keywords: Non-GAAP earnings, impression management, pro forma, press releases

JEL Classification: M41

working papers series