Information Content and Voluntary Disclosure Effect of EBITDA

• In Event: Financial Accounting and Reporting 10

Abstract

This study investigates whether EBITDA metric is incrementally informative beyond GAAP earnings and/or Pro forma earnings by analyzing a sample of 181,677 firm-quarters over the period from 2000 to 2013. Our investigation of short-window market reaction around earnings announcement reveals that EBITDA earnings are incrementally informative beyond not only GAAP earnings but also Pro forma earnings. The evidence also suggests that firms’ voluntary EBITDA disclosure increases the informativeness of EBITDA, suggesting that market participants find disclosures of EBITDA metric incrementally useful for equity pricing. Finally, evidence indicate that EBITDA information and Pro forma earnings are complementary, in the sense that value relevance of both EBITDA and Pro forma earnings increases when EBITDA forecast errors and Pro forma forecast errors are pointing to the same direction.

Authors

• Sok-Hyon Kang, George Washington University

• Joon Seok Moon, George Washington University

• Oded Rozenbaum, George Washington University

• Zinan Zhu, National University of Singapore