The Use and Abuse of Non-GAAP Financial Measures: An Exploratory Study of Indian Companies

16 Pages Posted: 19 Mar 2021

See all articles by R. Narayanaswamy

R. Narayanaswamy

Indian Institute of Management (IIMB), Bangalore

Date Written: March 19, 2021

Abstract

Indian companies use non-GAAP financial measures in addition to GAAP measures. Unlike GAAP measures, non-GAAP measures are not defined well. This creates conditions for managers to use these measures opportunistically to distort performance reporting and analysis. A relatively weak legal system and the absence of shareholder litigation in India make the abuse of these measures more likely than in developed countries. This study provides preliminary evidence based on annual reports for 187 firm-years for 54 firms about the use of non-GAAP measures in India. The evidence includes archival and anecdotal data. The evidence indicates that managers often use such measures opportunistically when faced with decline in sales or profit growth.

Keywords: non-GAAP earnings, reporting consistency, earnings comparability

JEL Classification: G14, M40, M41, M48

Suggested Citation

Narayanaswamy, Ramaswami, The Use and Abuse of Non-GAAP Financial Measures: An Exploratory Study of Indian Companies (March 19, 2021). IIM Bangalore Research Paper No. 637, Available at SSRN: https://ssrn.com/abstract=3807818 or http://dx.doi.org/10.2139/ssrn.3807818

Ramaswami Narayanaswamy (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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