The Impact of Media Attention on the Use of Alternative Earnings Measures

The practice of reporting earnings measures that deviate from generally accepted accounting principles (non-GAAP measures) has received negative attention in the media. In a period of increased regulatory concern for these reporting practices, we explore whether there has been a shift away from the use of non-GAAP metrics. This study focuses on the Dutch situation, where regulators responded conservatively (‘light’) to the accounting scandals. This contrasts with the U.S., where regulators intervened with a radical (‘heavy’) reform of regulation. We analyse a sample of earnings press releases published in the period 2000–05 from companies listed at Euronext Amsterdam. Our findings indicate that Dutch companies report non-GAAP measures frequently and prominently. However, companies' reporting behaviour changes after a peak in negative media attention for non-GAAP reporting. The magnitude of the adjustments to GAAP earnings becomes smaller and companies seem to have different reasons to report non-GAAP measures. The effect of the media attention is stronger when companies have been criticized for their non-GAAP reporting in the press. Investors seem to have become more hesitant towards the use of non-GAAP measures for their decision-making after negative media attention. Together, these findings suggest that the negative media attention for non-GAAP measures has influenced the decisions of investors and managers

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