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Impression Management and Non-GAAP Reporting in Earnings Announcements

Forthcoming - Journal of Business Finance and Accounting

53 Pages Posted: 13 Jan 2012 Last revised: 20 Jan 2017

Encarna Guillamon Saorin

Universidad Carlos III de Madrid

Helena Isidro

ISCTE-IUL Instituto Universitário de Lisboa

Ana Cristina Marques

Nova School of Business and Economics; Indian Institute of Management (IIMB), Bangalore

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Date Written: January 1, 2017

Abstract

We study the market’s reaction to the disclosure of non-GAAP earnings measures that are combined with high impression management. We construct an impression management score that captures several communication techniques that managers often use to positively bias investors’ perceptions of firm’s performance. We hand-collect and code both quantitative and qualitative information from earnings announcement press releases of large European firms. Our results indicate that non-GAAP measures are informative to capital markets. However, non-GAAP adjustments are more persistent when accompanied by higher levels of impression management. This evidence is consistent with managers attempting to distort users’ perceptions when non-GAAP adjustments are of lower quality. Market reaction tests suggest that investors are able to see through managers’ intentions and discount non-GAAP information that is accompanied by high impression management. Moreover, investors in more sophisticated markets penalize non-GAAP measures communicated with high impression management. Our results are robust to a battery of sensitivity tests, including using a machine-coded tone measure.

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

JEL Classification: M41

Suggested Citation

Guillamon Saorin, Encarna and Isidro, Helena and Marques, Ana Cristina, Impression Management and Non-GAAP Reporting in Earnings Announcements (January 1, 2017). Forthcoming - Journal of Business Finance and Accounting. Available at SSRN: https://ssrn.com/abstract=1984056 or http://dx.doi.org/10.2139/ssrn.1984056

Encarna Guillamon Saorin

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Helena Isidro

ISCTE-IUL Instituto Universitário de Lisboa ( email )

Avenida Forcas Armadas
Lisboa, 1649-026
Portugal

Ana Cristina Marques (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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