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
Citation
HSU, Charles; WANG, Rencheng; and WHIPPLE, Benjamin C..
Non-GAAP earnings and stock price crash risk. (2021). 1-58.
Available at: https://ink.library.smu.edu.sg/soa_research/1843
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.3454799