The Impact of the SEC's Regulation of Non-GAAP Disclosures

Posted: 28 Jul 2008

See all articles by Frank Heflin

Frank Heflin

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

Charles Hsu

Hong Kong University of Science & Technology

Multiple version iconThere are 2 versions of this paper

Date Written: July 8, 2008

Abstract

Rules implemented by the U.S. Securities and Exchange Commission in 2003 impose additional disclosure and filing requirements on firms publicly disclosing non-GAAP earnings. We find the regulations produced (1) modest declines in the frequency of special- and other-item exclusions, (2) a decline in exclusion magnitude, (3) a modest decline in the probability disclosed earnings meet or beat forecasts, and (4) a decline in the association between returns and forecast errors. Our results suggest that, while the regulations reduced firms' use of non-GAAP disclosures to improve performance perceptions, they also reduced firms' willingness to use non-GAAP earnings to convey permanent earnings.

Keywords: Capital markets, regulation, non-GAAP earnings, disclosure, analysts' forecasts

JEL Classification: G10, G29, G38, K20, K22, M41, M43, M45

Suggested Citation

Heflin, Frank and Hsu, Charles, The Impact of the SEC's Regulation of Non-GAAP Disclosures (July 8, 2008). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1182636

Frank Heflin (Contact Author)

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

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

Charles Hsu

Hong Kong University of Science & Technology ( email )

Hong Kong
Hong Kong
852-2358-7568 (Phone)
852-2358-1693 (Fax)

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