The Impact of Media Attention on the Use of Alternative Earnings Measures

31 Pages Posted: 30 Aug 2010

See all articles by Miriam Koning

Miriam Koning

Erasmus University Rotterdam (EUR) - Financial Management

Gerard Mertens

Erasmus University Rotterdam (EUR) - Department of Financial Management

Peter Roosenboom

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

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Abstract

The practice of reporting earnings measures that deviate from generally accepted accounting principles (non-GAAP measures) has received negative attention in the media. In a period of increased regulatory concern for these reporting practices, we explore whether there has been a shift away from the use of non-GAAP metrics. This study focuses on the Dutch situation, where regulators responded conservatively (‘light’) to the accounting scandals. This contrasts with the U.S., where regulators intervened with a radical (‘heavy’) reform of regulation. We analyse a sample of earnings press releases published in the period 2000–05 from companies listed at Euronext Amsterdam. Our findings indicate that Dutch companies report non-GAAP measures frequently and prominently. However, companies' reporting behaviour changes after a peak in negative media attention for non-GAAP reporting. The magnitude of the adjustments to GAAP earnings becomes smaller and companies seem to have different reasons to report non-GAAP measures. The effect of the media attention is stronger when companies have been criticized for their non-GAAP reporting in the press. Investors seem to have become more hesitant towards the use of non-GAAP measures for their decision-making after negative media attention. Together, these findings suggest that the negative media attention for non-GAAP measures has influenced the decisions of investors and managers.

Suggested Citation

Koning, Miriam and Mertens, Gerard and Roosenboom, Peter, The Impact of Media Attention on the Use of Alternative Earnings Measures. Abacus, Vol. 46, No. 3, pp. 258-288, September 2010, Available at SSRN: https://ssrn.com/abstract=1666472 or http://dx.doi.org/10.1111/j.1467-6281.2010.00319.x

Miriam Koning (Contact Author)

Erasmus University Rotterdam (EUR) - Financial Management ( email )

United States

Gerard Mertens

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2556 (Phone)
+31 10 408 9017 (Fax)

Peter Roosenboom

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T09-56
3000 DR Rotterdam
Netherlands
+31 10 40 82255 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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