Implications of Non-GAAP Earnings for Real Activities and Accounting Choices

53 Pages Posted: 21 Apr 2016 Last revised: 29 Jun 2019

See all articles by Henry Laurion

Henry Laurion

University of Colorado at Boulder - Department of Accounting

Date Written: June 7, 2019

Abstract

Non-GAAP earnings are almost always calculated to exclude the effects of acquisition and restructuring expenses, impairments, and intangible amortization. Managers who consistently report non-GAAP earnings act as if they place lower weight on these excluded expenses. Their firms pursue more and larger acquisitions, have higher total capital investment, and are more likely to restructure. Acquisition-related restructuring activities of firms reporting non-GAAP earnings were less sensitive to a rule change affecting the recognition of restructuring expense. Finally, firms with a history of reporting non-GAAP earnings record more discretionary asset impairments. As a consequence of these relations, firms reporting non-GAAP earnings have more persistent special-item expenses. Overall, these findings are consistent with the notion that non-GAAP earnings influence, or at least predict, firms’ real activities and accounting choices.

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

JEL Classification: M20; M40; M41

Suggested Citation

Laurion, Henry, Implications of Non-GAAP Earnings for Real Activities and Accounting Choices (June 7, 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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