Events

Prof. Theodore (Ted) E. Christensen
Director and Terry Distinguished Chair of Business
J. M. Tull School of Accounting
University of Georgia

We provide evidence on a growing trend that has captured the attention of analysts, investors, standard setters, and the SEC—non-GAAP revenue guidance. We find that the frequency of non-GAAP revenue guidance has increased dramatically from 1.5% in 2005 to 22.7% in 2021, peaking at 30.1% in 2015. We find that guidance on ‘organic’ and ‘constant-currency’ revenues dominate as the most common types of non-GAAP revenue guidance metrics. Managers are more likely to guide with respect to non-GAAP revenues when their firms are larger, have greater growth opportunities, and experience special item and merger charges. Given managers’ discretion about how they calculate non-GAAP revenues, it is unclear whether non-GAAP revenue guidance benefits analysts’ and investors’ forecasting and valuation activities. Our evidence suggests that non-GAAP revenue guidance is associated with a reduction in analysts’ revenue and earnings forecast errors and it influences investors’ pricing of revenue news, suggesting that this form of guidance is informative to capital market participants. Overall, we provide the first archival evidence on non-GAAP revenue guidance, which can be informative to the SEC, standard setters, and academics in understanding the current landscape of firms’ forward-looking non-GAAP disclosures.