Public and private enforcement of non-GAAP reporting

65 Pages Posted: 21 May 2019 Last revised: 17 Jan 2024

See all articles by Dain C. Donelson

Dain C. Donelson

University of Iowa

Antonis Kartapanis

Texas A&M University - Mays Business School

Colin Koutney

Donald G. Costello College of Business at George Mason University

Chris X. Zhao

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law

Date Written: January 1, 2024

Abstract

This study provides initial evidence on public and private enforcement of non-GAAP reporting. Although investors place weight on non-GAAP measures, there is little evidence on non-GAAP enforcement because researchers primarily focus on GAAP-related enforcement. Further, the SEC uses comment letters to oversee non-GAAP reporting, but the effectiveness of this approach is questionable. Firms that receive non-GAAP comment letters are more likely than control firms to receive future non-GAAP comment letters, with the same comments often repeated. Raising further concern about non-GAAP comment letters, firms issue longer, harder to read, and more redundant earnings announcements after receiving such comment letters. Serious non-GAAP enforcement is also very rare. Overall, the pursuit of serious non-GAAP enforcement appears to be unattractive to the SEC and lawyers. Finally, alleged non-GAAP issues of firms subject to serious enforcement do not align with academic measures of non-GAAP aggressiveness, calling into question academic proxies for serious non-GAAP aggressiveness.

Keywords: Non-GAAP Reporting; Securities Class Actions; Litigation; SEC Enforcement

JEL Classification: G30, K22, K41, M41

Suggested Citation

Donelson, Dain C. and Kartapanis, Antonis and Koutney, Colin and Zhao, Chris X., Public and private enforcement of non-GAAP reporting (January 1, 2024). 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

Colin Koutney (Contact Author)

Donald G. Costello College of Business at George Mason University ( email )

Fairfax, VA 22030
United States

Chris X. Zhao

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law ( email )

Hong Kong

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