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Investor Connections and Non-GAAP Reporting

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Date Issued:
2019
Abstract/Description:
I investigate whether a firm’s social capital with investors impacts its non-GAAP reporting decisions. Critics of non-GAAP reporting suggest that non-GAAP earnings are incomplete, inaccurate, and can be misleading (Derby, 2001; Dreman, 2001; Elstein, 2001; Black et al., 2007). Firms might be hesitant to provide non-GAAP information if other means are available to transfer information. Social capital provides an alternate method of informing investors. However, social capital might also play another role in the information environment by building trust between managers and investors (Gabarro, 1978; Gulati, 1995). This trust may reduce investor skepticism of non-GAAP information, enhancing the value of non-GAAP disclosures. Additionally, I examine what impact social capital might have on investors’ investment decisions with respect to non-GAAP reporting. Despite critics’ concerns over non-GAAP reporting, prior literature suggests investors’ reactions are more aligned with the non-GAAP definition of earnings (Bradshaw and Sloan, 2002; Bhattacharya et al., 2003), suggesting other factors might influence investors’ decisions. I investigate whether social capital plays a role in reducing skepticism in non-GAAP information leading to reduced information asymmetry and increased investor reaction to non-GAAP disclosures. I find that non-GAAP reporting is increasing in social capital with investors. However, I find no evidence that investor reactions to non-GAAP earnings information differ based on firms’ social capital with investors. I also find information asymmetry around earnings announcements is higher for non-GAAP reporting firms with greater social capital with investors in comparison to non-GAAP reporters with lower social capital. Taken together, my results suggest social capital impacts the decisions of firms in reporting non-GAAP earnings information, but not the decisions of investors. My results are relevant to the current disclosure environment in that non-GAAP reporting is a current topic of interest for regulators with several updates to non-GAAP guidance having recently occurred.
Title: Investor Connections and Non-GAAP Reporting.
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Name(s): Harwood, Chad, author
Kohlbeck, Mark, Thesis advisor
Florida Atlantic University, Degree grantor
College of Business
School of Accounting
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Created: 2019
Date Issued: 2019
Publisher: Florida Atlantic University
Place of Publication: Boca Raton, Fla.
Physical Form: application/pdf
Extent: 105 p.
Language(s): English
Abstract/Description: I investigate whether a firm’s social capital with investors impacts its non-GAAP reporting decisions. Critics of non-GAAP reporting suggest that non-GAAP earnings are incomplete, inaccurate, and can be misleading (Derby, 2001; Dreman, 2001; Elstein, 2001; Black et al., 2007). Firms might be hesitant to provide non-GAAP information if other means are available to transfer information. Social capital provides an alternate method of informing investors. However, social capital might also play another role in the information environment by building trust between managers and investors (Gabarro, 1978; Gulati, 1995). This trust may reduce investor skepticism of non-GAAP information, enhancing the value of non-GAAP disclosures. Additionally, I examine what impact social capital might have on investors’ investment decisions with respect to non-GAAP reporting. Despite critics’ concerns over non-GAAP reporting, prior literature suggests investors’ reactions are more aligned with the non-GAAP definition of earnings (Bradshaw and Sloan, 2002; Bhattacharya et al., 2003), suggesting other factors might influence investors’ decisions. I investigate whether social capital plays a role in reducing skepticism in non-GAAP information leading to reduced information asymmetry and increased investor reaction to non-GAAP disclosures. I find that non-GAAP reporting is increasing in social capital with investors. However, I find no evidence that investor reactions to non-GAAP earnings information differ based on firms’ social capital with investors. I also find information asymmetry around earnings announcements is higher for non-GAAP reporting firms with greater social capital with investors in comparison to non-GAAP reporters with lower social capital. Taken together, my results suggest social capital impacts the decisions of firms in reporting non-GAAP earnings information, but not the decisions of investors. My results are relevant to the current disclosure environment in that non-GAAP reporting is a current topic of interest for regulators with several updates to non-GAAP guidance having recently occurred.
Identifier: FA00013214 (IID)
Degree granted: Dissertation (Ph.D.)--Florida Atlantic University, 2019.
Collection: FAU Electronic Theses and Dissertations Collection
Note(s): Includes bibliography.
Subject(s): GAAP (Accounting)
Investors
Social capital (Economics)
Held by: Florida Atlantic University Libraries
Sublocation: Digital Library
Persistent Link to This Record: http://purl.flvc.org/fau/fd/FA00013214
Use and Reproduction: Copyright © is held by the author with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Use and Reproduction: http://rightsstatements.org/vocab/InC/1.0/
Host Institution: FAU
Is Part of Series: Florida Atlantic University Digital Library Collections.