Impression Management and Non-GAAP Disclosure in Earnings Announcement

Forthcoming - Journal of Business Finance and Accounting

53 Pages Posted: 27 Feb 2012 Last revised: 20 Jan 2017

See all articles by Encarna Guillamon Saorin

Encarna Guillamon Saorin

Universidad Carlos III de Madrid

Helena Isidro

ISCTE-IUL Instituto Universitario de Lisboa

Ana Cristina Marques

Norwich Business School - University of East Anglia

Multiple version iconThere are 2 versions of this paper

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: pro forma, disclosure tone, investor protection, sophisticated markets

JEL Classification: M41

Suggested Citation

Guillamon Saorin, Encarna and Isidro, Helena and Marques, Ana Cristina, Impression Management and Non-GAAP Disclosure in Earnings Announcement (January 1, 2017). Forthcoming - Journal of Business Finance and Accounting. Available at SSRN: https://ssrn.com/abstract=2011889 or http://dx.doi.org/10.2139/ssrn.2011889

Encarna Guillamon Saorin

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Helena Isidro

ISCTE-IUL Instituto Universitario de Lisboa

Av. das Forças Armadas
Lisboa, 1649-026
Portugal

Ana Cristina Marques (Contact Author)

Norwich Business School - University of East Anglia ( email )

Norwich
NR4 7TJ
United Kingdom

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