TY - JOUR
T1 - The Determinants and Informativeness of Non-GAAP Revenue Disclosures
AU - Campbell, John L.
AU - Gee, Kurt H.
AU - Wiebe, Zac
N1 - Publisher Copyright:
© 2022 American Accounting Association. All rights reserved.
PY - 2022/11
Y1 - 2022/11
N2 - Most research on non-GAAP financial measures focuses on earnings or earnings per share, although non-GAAP revenue disclosure has recently attracted SEC scrutiny. It is unclear ex ante what non-GAAP adjustments could improve revenue's usefulness because, unlike earnings, revenue is a top-line number related primarily to core (i.e., persistent) business activities. We present the first archival analysis of non-GAAP revenues using a large, hand-collected sample of disclosures from 2015 to 2018. Approximately one in five earnings announcements contains a non-GAAP revenue disclosure, focused on revenue growth. Our evidence suggests that firms disclose non-GAAP revenue when GAAP revenue is incomparable with prior periods, and not to compensate for poor GAAP performance. Furthermore, non-GAAP revenue growth predicts future revenue growth better than GAAP revenue growth, and the market responds to this information. Overall, non-GAAP revenue disclosures are motivated by economic fundamentals rather than opportunism, on average, and they provide investors with relevant information.
AB - Most research on non-GAAP financial measures focuses on earnings or earnings per share, although non-GAAP revenue disclosure has recently attracted SEC scrutiny. It is unclear ex ante what non-GAAP adjustments could improve revenue's usefulness because, unlike earnings, revenue is a top-line number related primarily to core (i.e., persistent) business activities. We present the first archival analysis of non-GAAP revenues using a large, hand-collected sample of disclosures from 2015 to 2018. Approximately one in five earnings announcements contains a non-GAAP revenue disclosure, focused on revenue growth. Our evidence suggests that firms disclose non-GAAP revenue when GAAP revenue is incomparable with prior periods, and not to compensate for poor GAAP performance. Furthermore, non-GAAP revenue growth predicts future revenue growth better than GAAP revenue growth, and the market responds to this information. Overall, non-GAAP revenue disclosures are motivated by economic fundamentals rather than opportunism, on average, and they provide investors with relevant information.
UR - http://www.scopus.com/inward/record.url?scp=85144038632&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85144038632&partnerID=8YFLogxK
U2 - 10.2308/TAR-2020-0466
DO - 10.2308/TAR-2020-0466
M3 - Article
AN - SCOPUS:85144038632
SN - 0001-4826
VL - 97
SP - 23
EP - 48
JO - Accounting Review
JF - Accounting Review
IS - 7
ER -