The Impact of the Sec's Regulation of Non-Gaap Disclosures

Heflin, Frank; Hsu, Charles

doi:10.2139/ssrn.494882

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The Impact of the Sec's Regulation of Non-Gaap Disclosures

58 Pages Posted: 6 Feb 2004 Last revised: 27 Jul 2008

See all articles by Frank Heflin

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

Charles Hsu

Hong Kong University of Science & Technology

There are 2 versions of this paper

Date Written: May 2007

Abstract

Rules implemented by the U.S. Securities and Exchange Commission in 2003 impose additional disclosure and filing requirements on firms publicly disclosing non-GAAP earnings. We find the regulations produced (1) modest declines in the frequency of special- and other-item exclusions, (2) a decline in exclusion magnitude, (3) a modest decline in the probability disclosed earnings meet or beat forecasts, and (4) a decline in the association between returns and forecast errors. Our results suggest that, while the regulations reduced firms' use of non-GAAP disclosures to improve performance perceptions, they also reduced firms' willingness to use non-GAAP earnings to convey permanent earnings.

Keywords: Disclosure, regulation, earnings, analysts' forecasts

JEL Classification: G10, G29, G38, M41, M45, K20, K22

Suggested Citation: Suggested Citation

Heflin, Frank and Hsu, Charles, The Impact of the Sec's Regulation of Non-Gaap Disclosures (May 2007). Available at SSRN: https://ssrn.com/abstract=494882 or http://dx.doi.org/10.2139/ssrn.494882