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SEC Regulation and Non-GAAP Income Statements

We study firms’ decisions to provide non-GAAP income statements and the information environment consequences of SEC comment letters directing them to stop disclosing such statements. We find firms voluntarily disclose non-GAAP income statements when firm and disclosure complexity, analyst following, and institutional ownership are higher. Using a difference-in-differences design, we find that, after firms stop disclosing full non-GAAP income statements at the direction of the SEC, the informativeness of non-GAAP earnings and overall earnings announcements decreases, information asymmetry increases, and analyst forecasts become less accurate and more disperse. We also find that firms not receiving a comment letter are more likely to stop providing non-GAAP income statements after an industry-peer receives a non-GAAP income statement comment letter. Overall, our evidence suggests SEC comment letters about non-GAAP income statements appear to worsen the information environment for firms previously providing those statements.