SEC Non-GAAP Comment Letters and Firm Disclosures

53 Pages Posted: 21 May 2019 Last revised: 14 Apr 2020

See all articles by Dain C. Donelson

Dain C. Donelson

University of Iowa

Antonis Kartapanis

Texas A&M University - Mays Business School; The University of Texas at Austin

Colin Koutney

George Mason University - School of Business; George Mason University

Date Written: April 2020

Abstract

Is the SEC’s non-GAAP comment letter process effective? Specifically, what are the determinants of non-GAAP comment letters and how do managers respond? We find that the SEC issues comment letters to firms with larger differences between Street and GAAP earnings, but is less likely to issue to firms with Big 4 auditors. Managers respond by issuing longer earnings announcements that are more difficult to read. Importantly, managers do not reduce the strategic nature of non-GAAP reporting (that is, there are no reductions in differences between Street and GAAP earnings nor the likelihood of meeting or beating analyst forecasts). Perhaps most importantly, firms receiving non-GAAP comment letters are more likely to receive non-GAAP comment letters again in the following three years, but are not more likely to receive GAAP comment letters, consistent with ongoing noncompliance in non-GAAP disclosures. These results should be of interest to both academics and regulators interested in non-GAAP comment letters.

Keywords: Non-GAAP earnings, SEC Comment Letters, SEC regulation

JEL Classification: M41

Suggested Citation

Donelson, Dain C. and Kartapanis, Antonis and Koutney, Colin, SEC Non-GAAP Comment Letters and Firm Disclosures (April 2020). Available at SSRN: https://ssrn.com/abstract=3375762 or http://dx.doi.org/10.2139/ssrn.3375762

Dain C. Donelson

University of Iowa ( email )

108 Pappajohn Business Building
Iowa City, 52242-1000
United States

Antonis Kartapanis

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

The University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Colin Koutney (Contact Author)

George Mason University - School of Business ( email )

Fairfax, VA 22030
United States

George Mason University ( email )

Fairfax, VA 22030
United States

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