CFO Incentive Compensation and the Use of Non-GAAP Financial Information in Press Releases

• In Event: Financial Accounting and Reporting I

Abstract

Non-GAAP disclosures cam be a useful tool to display precise information about a particular business or create an opportunity to obscure the truth. The CFO, who directly benefits from slow and steady share price increases, thus may be incentivized to use this tool to guide investment. In 2010, the SEC issued updated guidance regarding these disclosures, and despite recent questions regarding its potential abuse, little research has been conducted in this area since the guidance emerged. Therefore, we examine the relationship between the use of non-GAAP financial metrics in press releases and CFO incentive compensation among comparative samples of the S&P 400 and S&P 500 for the 2012 fiscal year. Results suggest significant relationship differences in the number of non-GAAP financial measures included in press releases, the spread between GAAP and non-GAAP EPS, and the CFO’s incentive pay.

Authors

• Andrea Scheetz, Case Western Reserve University

• Joseph Wall, Carthage College