Accounting Seminar: Professor Stephen Taylor
Non-GAAP Earnings and the Earnings Quality Trade-off
Using a large sample of non-GAAP earnings reported in press releases, we examine and compare several attributes of these measures with their closest GAAP equivalent. We expect voluntarily disclosed measures of financial performance to reflect informational demands that are not satisfactorily met via statutory (GAAP) measures. We find that, on average, non-GAAP earnings are more persistent, smoother, more value-relevant, and have higher predictive power than their GAAP equivalent. However, non-GAAP earnings are less conservative and less timely than their closest GAAP equivalent, consistent with non-GAAP earnings measures reflecting a reversal of the trade-off between value relevance and conservatism imposed by accounting standards and auditors. We also find that differences in several of these attributes between GAAP and non-GAAP earnings are more evident in large firms with lower market-to-book ratios and high board independence. Our evidence supports the informative motive as an explanation for non-GAAP earnings disclosures, and questions the extent of the economic demand for conditional conservatism.
Stephen Taylor is Professor of Accounting in the Business School at the University of Technology Sydney, and is a member of the Australian Accounting Standards Board. He is a Fellow of the Academy of Social Sciences in Australia. During 2016-17, Stephen served as the inaugural Australian Business Deans’ Council Research Scholar. Stephen served as Associate Dean-Research in the UTS Business School from 2009-2015, and from 2012-2015, he was also Chair of the Business Academic Research Directors’ Network (BARDsNet), which represents the research interests of the Australian Business Dean’s Council. Immediately prior to joining UTS he was Professor of Accounting at the Australian School of Business, UNSW, where he also served as Acting Associate Dean (Research) in 2005-2006.
He is a member of the Board of Directors of the CMCRC, Chair of the Audit Committee and also serves as a board representative on the Research and Education committee. He is also a director (and Deputy Chair) of SIRCA Ltd and its subsidiary Rozetta, and is the Chair of the Audit and Risk Management Committee. Stephen was also a member of the CIFR Advisory Council (2011-2014) and also the Research Committee. He has served for a number of years as an Academic Advisor to Plato Funds Management, a boutique quantitative funds manager with over $4 billion in funds under management.
Stephen’s research has been published in leading international journals, including the Journal of Accounting and Economics, Review of Accounting Studies, Contemporary Accounting Research, Journal of Accounting and Public Policy, Journal of Financial and Quantitative Analysis, Journal of Banking and Finance, and Journal of Corporate Finance. He has twice received the best paper prize from the Accounting and Finance Association of Australia and New Zealand. Stephen is currently a Co-Editor of the International Journal of Accounting. From 2012-2015 he was an Associate Editor (i.e., full editorial decision making) of Accounting Horizons, published by the American Accounting Association. He is a member of several editorial boards including Contemporary Accounting Research, Auditing: A Journal of Practice and Theory, Accounting and Finance and Australian Journal of Management. He serves as an ad-hoc referee for The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Review of Accounting Studies and Accounting, Organizations and Society.
Stephen has received many large ARC Grants (Discovery and Linkage). Most recently (for the period 2018-2020), Stephen is the team leader on an ARC-funded project examining the use of “non-GAAP” metrics in determining executive compensation and the link to external reporting. He currently serves the ARC as an expert assessor for International Linkage, Federation Fellowship and Discovery applications, as well as having been an ERA peer reviewer. In 2007 Stephen was appointed to the Research Quality Framework assessment panel for Business and Economics, and in 2015 was a member of the Research Evaluation Committee (Economics and Business) for the 2015 ERA assessment exercise. In late 2008 Stephen served as the Don Trow Visiting Fellow at Victoria University, Wellington.