Non-GAAP Images, Press Release Prominence, and Investors’ Reliance on Non-GAAP Earnings

42 Pages Posted: 27 Jan 2018 Last revised: 6 May 2018

See all articles by Nerissa C. Brown

Nerissa C. Brown

University of Illinois at Urbana-Champaign

W. Brooke Elliott

University of Illinois at Urbana-Champaign

Stephanie M. Grant

University of Washington

Date Written: April 27, 2018

Abstract

Firms are increasingly disseminating images on social media that prominently display customized measures of the firm’s earnings performance (labeled as “non-GAAP images”). This disclosure practice falls outside the scope of existing authoritative guidance on the prominence of non-GAAP financial metrics in earnings releases and other SEC filings. Using an experimental design, we isolate this unexplored regulatory gap and investigate how non-GAAP earnings metrics disseminated via an image on social media and presented prominently in a hyperlinked earnings release interact to influence investors’ reliance on non-GAAP earnings. The results from our primary experiment indicates that nonprofessional investors fixate less on the non-GAAP metric when GAAP earnings is presented more prominently in the earnings release in line with SEC rules. However, when the firm disseminates an image tweet featuring the non-GAAP figure, nonprofessional investors rely more on the non-GAAP metric even when the earnings press release features the GAAP metric more prominently. Additional results from supplemental experiments confirm that background imagery operates as a distinctively unique prominence tool that differentially influences investor judgments compared to traditional text-based prominence.

Keywords: Non-GAAP Earnings, Image, Social Media, Twitter, Investment Decisions

JEL Classification: G11, G40, M41

Suggested Citation

Brown, Nerissa C. and Elliott, W. Brooke and Grant, Stephanie M., Non-GAAP Images, Press Release Prominence, and Investors’ Reliance on Non-GAAP Earnings (April 27, 2018). Available at SSRN: https://ssrn.com/abstract=3080994 or http://dx.doi.org/10.2139/ssrn.3080994

Nerissa C. Brown (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

W. Brooke Elliott

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Stephanie M. Grant

University of Washington ( email )

Box 353200
Seattle, WA 98195-3200
United States
(206) 543-2904 (Phone)

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