Disentangling Managers’ and Analysts’ Non-GAAP Reporting

Abstract

Researchers frequently proxy for managers‟ non-GAAP disclosures using performance metrics available through analyst forecast data providers (FDPs), such as I/B/E/S. The extent to which FDP data is a valid proxy for managers‟ non-GAAP reporting, however, has been debated extensively. We explore this important question by creating the first large-sample dataset of managers‟ non-GAAP earnings disclosures, which we directly compare to I/B/E/S data. Although we find a substantial overlap between the two datasets, we also find that they differ in systematic ways because I/B/E/S (1) excludes managers‟ lower quality non-GAAP numbers and (2) sometimes provides higher quality non-GAAP measures that managers do not explicitly disclose. Our results indicate that using I/B/E/S to identify managers‟ non- GAAP disclosures significantly underestimates the aggressiveness of their reporting choices. We encourage researchers interested in managers‟ non-GAAP reporting to use our newly available dataset of manager-disclosed non-GAAP metrics because it more accurately captures managers‟ reporting choices.