Non-GAAP Images, Press Release Prominence, and Investors’ Reliance on Non-GAAP Earnings

Firms are increasingly disseminating images on social media that prominently display customized measures of the firm’s earnings performance (labeled as “non-GAAP images”). This disclosure practice falls outside the scope of existing authoritative guidance on the prominence of non-GAAP financial metrics in earnings releases and other SEC filings. Using an experimental design, we isolate this unexplored regulatory gap and investigate how non-GAAP earnings metrics disseminated via an image on social media and presented prominently in a hyperlinked earnings release interact to influence investors’ reliance on non-GAAP earnings. The results from our primary experiment indicates that nonprofessional investors fixate less on the non-GAAP metric when GAAP earnings is presented more prominently in the earnings release in line with SEC rules. However, when the firm disseminates an image tweet featuring the non-GAAP figure, nonprofessional investors rely more on the non-GAAP metric even when the earnings press release features the GAAP metric more prominently. Additional results from supplemental experiments confirm that background imagery operates as a distinctively unique prominence tool that differentially influences investor judgments compared to traditional text-based prominence.