Non-GAAP Disclosures and Investor Uncertainty

We examine the association between I/B/E/S's disclosure of non-GAAP earnings and investor uncertainty around earnings announcements. On one hand, investor uncertainty may decrease with I/B/E/S's non-GAAP disclosure because these disclosures make investors aware of alternative performance measures for firm valuation and reduce the acquisition costs related to them. On the other hand, investor uncertainty may increase with I/B/E/S's non-GAAP disclosure because the opacity in how I/B/E/S determines non-GAAP earnings imposes additional integration costs on investors. Consistent with the latter effect dominating, we find that investor uncertainty is increasing in the amount of I/B/E/S's non-GAAP adjustments. In contrast, managers' non-GAAP adjustments, which are accompanied with a reconciliation to GAAP earnings and are therefore relatively more transparent, are not associated with investor uncertainty around earnings announcements. These results expand our understanding of how different sources of non-GAAP information affect capital markets and highlight the nuanced role of information intermediaries in the non-GAAP disclosure environment.