Non-GAAP Earnings Disclosure and IPO Pricing

Nerissa C. Brown, Theodore E. Christensen, Andrea Menini, Thomas D. Steffen

Research output: Working paper

Abstract

We investigate the disclosure and prominence of non-GAAP (customized) earnings in IPO prospectuses, and how these disclosures affect IPO pricing. We find that issuers disclosing non-GAAP metrics exclude significant amounts of recurring and uncommon earnings items. Additionally, the disclosure and prominence of non-GAAP metrics are influenced by operating performance, industry-peer effects, venture backing, and the use of non-GAAP metrics in debt covenants. Our pricing tests indicate that, while non-GAAP IPOs exhibit lower underpricing, this effect is conditioned on how issuers arrive at the non-GAAP figure. Specifically, prospectuses containing larger recurring (or unusual) exclusions exhibit greater underpricing stemming from underwriter lowballing.
Original languageEnglish (US)
Number of pages59
DOIs
StatePublished - Jul 6 2016

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Disclosure
Pricing
Underpricing
Operating performance
Peer effects
Industry
Underwriters
Exclusion
Debt covenants
Venture

Keywords

  • non-GAAP
  • IPOs
  • underpricing
  • price revision
  • prospectus
  • disclosure

Cite this

Non-GAAP Earnings Disclosure and IPO Pricing. / Brown, Nerissa C.; Christensen, Theodore E.; Menini, Andrea; Steffen, Thomas D.

2016.

Research output: Working paper

Brown, Nerissa C. ; Christensen, Theodore E. ; Menini, Andrea ; Steffen, Thomas D. / Non-GAAP Earnings Disclosure and IPO Pricing. 2016.
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