Information Environment Consequences of SEC Non-GAAP Comment Letters

64 Pages Posted: 3 Oct 2017 Last revised: 26 Apr 2018

See all articles by Enrique Gomez

Enrique Gomez

University of Georgia

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

Jasmine Wang

University of Georgia

Date Written: April 15, 2018

Abstract

This study examines how changes in firms’ non-GAAP disclosures, prompted by SEC comment letters, affect information asymmetry and the informativeness of non-GAAP earnings. SEC non-GAAP earnings comments generally address four issues: (1) full non-GAAP income statements, (2) non-GAAP to GAAP reconciliation, (3) explanation of non-GAAP earnings, and (4) presentation of non-GAAP earnings. We find that information asymmetry increases and the informativeness of non-GAAP earnings decreases after firms comply with SEC requests to stop disclosing full non-GAAP income statements. Additional analyses reveal that analyst forecast dispersion and error increase after firms stop disclosing full non-GAAP income statements. Our results are robust to difference-in-difference analyses on a matched control sample and a variety of other robustness checks and falsification analyses. We find little or no evidence of changes in information asymmetry or non-GAAP earnings informativeness following the resolution of comment letters addressing the other three issues. Overall, our evidence is consistent with managers’ arguments indicating that non-GAAP income statements provide valuable information to market participants, including analysts.

Keywords: SEC, Comment Letters, Regulation, Non-GAAP

JEL Classification: M41, M48

Suggested Citation

Gomez, Enrique and Heflin, Frank and Wang, Jasmine, Information Environment Consequences of SEC Non-GAAP Comment Letters (April 15, 2018). Available at SSRN: https://ssrn.com/abstract=3044026 or http://dx.doi.org/10.2139/ssrn.3044026

Enrique Gomez

University of Georgia ( email )

Athens, GA 30602-6254
United States

Frank Heflin (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

Jasmine Wang

University of Georgia ( email )

Athens, GA 30602-6254
United States

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