What do the S&P 500 Disclose in Their Earnings Announcements? Evidence on Financial Statements and Non-GAAP Financial Measures

Abstract

The recent increase in the usefulness of earnings announcements is associated with the disclosure of income statements (Francis et al., 2002) and non-GAAP financial measures (Collins et al., 2005). This paper extends these results by investigating the disclosure and informativeness of non-GAAP financial statements and certain aspects of the disclosure of non-GAAP financial measures, analyzing quarterly earnings announcements' press releases of a sample of S&P500 firms during the 2001-2003 period. There are three main results. First, both the reconciliation and the non-GAAP consolidated statement of income have information content. Second, the study of the patterns of firms' disclosure of non-GAP financial measures indicates that out of 358 firms, 68% disclosed some non-GAAP financial measure in all the three years - thus, contrary to what was suggested by previous research (e.g.: Allee et al, 2007), this disclosure is not sporadic. Finally, an analysis of the emphasis given to non-GAAP financial measures indicates that, in 2003, the relative emphasis is significantly higher in the cases where the GAAP earnings number does not reach a certain threshold but the non-GAAP earnings number does. This suggests that managers respond to economic motivations when deciding how much emphasis should de given to non-GAAP earnings.