SEC Regulation and Non-GAAP Income Statements
65 Pages Posted: 3 Oct 2017 Last revised: 17 Oct 2020
Date Written: October 11, 2020
We examine how SEC comment letters asking firms to remove full non-GAAP income statements affect those firms’ information environments. Using a difference-in-difference design, we find that the informativeness of non-GAAP earnings and earnings announcements decreases, information asymmetry increases, and analyst forecasts become less accurate and (at least weakly) more disperse. We also study what drives firms’ decisions to provide non-GAAP income statements and find that firms voluntarily disclose non-GAAP income statements when analyst following and institutional ownership are higher and when firm and disclosure complexity is higher. In addition, we find that SEC scrutiny over non-GAAP income statement reporters decreases the likelihood industry peers will disclose non-GAAP income statements despite not receiving a comment letter. Our results are robust to a variety of robustness checks and falsification analyses. Overall, our evidence suggests SEC comment letters about full non-GAAP income statements worsen the information environment for firms previously providing those statements.
Keywords: SEC, Comment Letters, Regulation, Non-GAAP
JEL Classification: M41, M48
Suggested Citation: Suggested Citation