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Financial accounting studies on the manipulation of shareholder¿s perception of results via disclosure and changes in the useful life of assets

Final Activity Report Summary - FINANCIAL ACCOUNTING (Financial accounting studies on the manipulation of shareholder?s perception of results via disclosure and changes in the useful life of assets)

My research focuses on understanding the relation between managers' disclosures and financial markets. Specifically, I analyse non-GAAP financial measures, i.e. financial measures that are calculated by managers in such a way that they do not follow the Generally Accepted Accounting Principles (GAAP). The disclosure of these numbers is affected by several factors. One of them is Regulation G, a rule created by the Securities and Exchange Commission (SEC) in the United States of America. This objective of this rule was to reduce disclosures that could mislead investors. One of my co-authored papers studies how the quality of firms' corporate governance interacts with the impact of this rule. First, we find that firms with weaker corporate governance mechanisms disclosed potentially more misleading earnings adjustments prior to the SEC regulatory intervention. Second, after the SEC intervention this difference between firms with weak and strong corporate governance narrowed. Finally, the results suggest that investors were not misled by non-GAAP earnings disclosures, even those made before the SEC intervention by firms with weak corporate governance.

But in Europe there is no equivalent of Regulation G. Thus, in a separate co-authored paper, I study the non-GAAP financial measures disclosed in the earnings announcements press releases of the 500 largest European companies. Our findings reveal that the disclosure of EBIT/EBITDA is much more common in Europe than in the US. Furthermore, the average number of non-GAAP financial measures per press release, when these disclosures occur, is three. What measures are disclosed and how much emphasis is given to them varies based on several firms' characteristics: size, performance, leverage, corporate governance practices, country, and industry affiliation. Finally, only 35% of the non-GAAP financial measures are explained by managers, but that this percentage has been growing