TY - JOUR
T1 - Non-GAAP earnings and executive compensation: An experiment
AU - Brosnan, Mark
AU - Duncan, Keith
AU - Hasso, Tim
AU - Hollindale, Jan
PY - 2023/4/27
Y1 - 2023/4/27
N2 - Literature suggests investors react to the presence, presentation and prominence of non-GAAP earnings disclosures. We extend this literature by considering the purpose of non-GAAP earnings disclosures and their effect on investors' judgements and decisions. We find when non-GAAP earnings are used to determine executive compensation, investors assign a higher evaluation of financial performance and invest more capital. Consistent with attribution theory, our mediation model finds that using non-GAAP earnings to remunerate executives strengthens the informative perception of non-GAAP earnings disclosures, influencing their evaluation and investment decision. Contrary to prior literature, we find investors intentionally rely on non-GAAP earnings in decision-making.
AB - Literature suggests investors react to the presence, presentation and prominence of non-GAAP earnings disclosures. We extend this literature by considering the purpose of non-GAAP earnings disclosures and their effect on investors' judgements and decisions. We find when non-GAAP earnings are used to determine executive compensation, investors assign a higher evaluation of financial performance and invest more capital. Consistent with attribution theory, our mediation model finds that using non-GAAP earnings to remunerate executives strengthens the informative perception of non-GAAP earnings disclosures, influencing their evaluation and investment decision. Contrary to prior literature, we find investors intentionally rely on non-GAAP earnings in decision-making.
U2 - https://doi.org/10.1111/acfi.13098
DO - https://doi.org/10.1111/acfi.13098
M3 - Article
SN - 1467-629X
SP - 1
EP - 24
JO - Accounting and Finance (ONLINE)
JF - Accounting and Finance (ONLINE)
ER -