How Do Non-GAAP Image Tweets Influence Investor Judgments?

Abstract

Firms are increasingly disseminating images on social media that display customized earnings measures (“non-GAAP images”). This practice falls outside the scope of mandatory disclosure rules on non-GAAP prominence in earnings releases and SEC filings. Using two experiments, we isolate this unexplored regulatory gap and investigate how non-GAAP images disseminated on social media influence investors’ reliance on non-GAAP earnings. Results of our first experiment indicate that images featuring an earnings metric amplify investors’ reactions to the valence of that metric, both when the image highlights positive or negative information. Results of a second experiment indicate that an image featuring non-GAAP earnings leads investors to rely more on non-GAAP earnings even when GAAP earnings is prominent in a hyperlinked earnings release. Thus, a non-GAAP image tweet overrides the prominent placement of GAAP earnings in the earnings release. However, no such overriding effect occurs when non-GAAP earnings is tweeted in a plain text format. Overall, results of our experiments confirm that images operate as a distinctive prominence tool that differentially influences investors compared to traditional text-based prominence.

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

JEL Classification: G11, G40, M41