Non-GAAP Earnings and Corporate Investment

46 Pages Posted: 21 Apr 2016 Last revised: 5 Feb 2019

See all articles by Henry Laurion

Henry Laurion

University of Colorado at Boulder - Department of Accounting

Date Written: January 22, 2019

Abstract

Most definitions of non-GAAP earnings are calculated to exclude the effects of acquisition and restructuring expenses, asset write-downs, and intangible asset amortization. I hypothesize that managers who report non-GAAP earnings place lower weight on the excluded expenses in their corporate investment decisions. Consistent with this hypothesis, I find that firms with a history of reporting non-GAAP earnings engage in more and larger acquisitions and have higher total capital investment. I also find that high capital expenditures are concentrated among firms whose non-GAAP earnings are calculated to exclude depreciation expense (i.e., firms that report EBITDA). Finally, I find that acquisition-related restructuring activities of firms reporting non-GAAP earnings were less sensitive to a rule change affecting the recognition of restructuring expense. Overall, these findings are consistent with the notion that managers’ corporate investment strategies are influenced, or at least revealed, by non-GAAP earnings.

Keywords: Non-GAAP Earnings; Corporate Investment; Acquisitions; Layoffs; SFAS 141(R)

JEL Classification: M20; M40; M41

Suggested Citation

Laurion, Henry, Non-GAAP Earnings and Corporate Investment (January 22, 2019). Available at SSRN: https://ssrn.com/abstract=2764490 or http://dx.doi.org/10.2139/ssrn.2764490

Henry Laurion (Contact Author)

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

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