Publication Type

Journal Article

Version

submittedVersion

Publication Date

4-2022

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.(c) 2021 Elsevier B.V. All rights reserved.

Keywords

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

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Corporate Reporting and Disclosure

Publication

Journal of Accounting and Economics

Volume

73

Issue

2-3

First Page

1

Last Page

26

ISSN

0165-4101

Identifier

10.1016/j.jacceco.2021.101473

Publisher

Elsevier: 24 months

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jacceco.2021.101473

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