The Effect of Increased Transparency on Manipulation and Value Relevance of Non-Gaap Disclosures by Real Estate Investment Trusts (Reits)

43 Pages Posted: 16 May 2006

See all articles by Bok Baik

Bok Baik

Seoul National University

Bruce K. Billings

Florida State University - Department of Accounting

Richard M. Morton

Florida State University - Department of Accounting

Date Written: May 2006

Abstract

This paper examines whether industry efforts to increase uniformity and improve transparency of a non-GAAP performance measure change manager behavior and market perceptions. We find that the frequency of REITs meeting or beating analysts' expectations of funds from operations (FFO) decreased following explicit industry initiatives to discourage manipulation. Concurrent with this shift, we find that the value relevance of FFO to investors increased, particularly for firms reporting a reconciliation of FFO with GAAP earnings. Collectively, our results suggest that industry guidance about non-GAAP performance curtailed managers' opportunistic reporting. Furthermore, the market response to FFO is consistent with investors perceiving less manipulation and greater reliability. We also provide evidence supporting the SEC's requirement for reconciling non-GAAP disclosures with GAAP measures.

Keywords: funds from operations, REIT, non-GAAP measures, analysts' expectations, stock market reaction

JEL Classification: M41, M45, L85, G12, G14, G29

Suggested Citation

Baik, Bok and Billings, Bruce K. and Morton, Richard M., The Effect of Increased Transparency on Manipulation and Value Relevance of Non-Gaap Disclosures by Real Estate Investment Trusts (Reits) (May 2006). Available at SSRN: https://ssrn.com/abstract=900849 or http://dx.doi.org/10.2139/ssrn.900849

Bok Baik

Seoul National University ( email )

Seoul
Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Bruce K. Billings (Contact Author)

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States
850-644-7889 (Phone)
850-644-8234 (Fax)

Richard M. Morton

Florida State University - Department of Accounting ( email )

Room No. 421
Tallahassee, FL 32306-8234
United States
850-644-7877 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
307
Abstract Views
1,826
rank
99,194
PlumX Metrics