No. 1: Non-GAAP reporting and investor attention: Are investors misled by exclusions of recurring expenses from non-GAAP earnings before restatement announcements?


Non-GAAP reporting is under debate as managers may opportunistically inflate non-GAAP earnings. By separating firms into groups based on exclusions of recurring expenses before material restatements occur this paper investigates whether market participants are misled based on ex-ante non-GAAP reporting. The results show a decline in cumulative abnormal returns (–11.8% aggressive non-GAAP Reporting vs. –2.7% non-aggressive non-GAAP reporting), reduction in overvaluation (–22.18% vs. no decline) and losses in the earnings response coefficient (–51.8% vs. no significant decline) for firms with prior aggressive non-GAAP reporting. Further, we document that investors are less responsive to aggressively reported non-GAAP earnings expost, indicating that increased attention enhances investor’s ability to see through the quality of non-GAAP exclusions.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.