The Accounting Review Vol. 99 No. 3 2024
Experience with Non-GAAP Earnings and Investors’ Pricing of Exclusions
Abstract
Although the increase in non-GAAP earnings metrics has drawn unfavorable attention from regulators and standard setters, it can provide valuable experience for investors. We investigate whether experience with non-GAAP earnings metrics influences investors’ pricing of non-GAAP exclusions. We measure experience as the frequency with which managers or analysts provide non-GAAP earnings over the prior eight quarters and find that experience aids in the pricing of non-GAAP exclusions. Absent prior experience with non-GAAP earnings metrics, investors appear to overestimate the persistence of exclusions at the earnings announcement, which corrects in the following months. Cross-sectional tests suggest that experience facilitates investors’ pricing of non-GAAP exclusions by reducing their information processing costs.
- DOI
- 10.2308/tar-2021-0645
- Volume
- 99
- Issue
- 3
- Pages
- 397-427
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex