Journal of Accounting and Economics Vol. 73 No. 2-3 2022
Non-GAAP earnings and stock price crash risk
Abstract
We investigate whether non-GAAP earnings disclosures increase stock price crash risk. Consistent with non-GAAP disclosures allowing managers to inflate investors’ perceptions about firm performance, our results indicate that income increasing non-GAAP reporting increases crash risk. We also find that managers can use non-GAAP reporting as a substitute for earnings management to withhold bad news from investors (the traditional explanation for crashes). Finally, we find a positive association between non-GAAP reporting and the likelihood of subsequent events that can trigger a crash. Overall, our evidence is consistent with some non-GAAP disclosures exposing investors to risks of large and sudden price declines.
- DOI
- 10.1016/j.jacceco.2021.101473
- Volume
- 73
- Issue
- 2-3
- Pages
- 101473
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref