Publication Type

Working Paper

Version

publishedVersion

Publication Date

10-2021

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.

Keywords

Non-GAAP earnings, Stock price crash risk, Disclosure, Regulation

Discipline

Accounting | Portfolio and Security Analysis

Research Areas

Corporate Reporting and Disclosure

First Page

1

Last Page

58

Publisher

SMU School of Accountacy Research Paper No. 2022-146

City or Country

Singapore

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.2139/ssrn.3454799

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