Beyond Earnings: Do EBITDA Reporting and Governance Matter for MarketParticipants?

Denis Cormier (1) , Michel Magnan , Samira Demaria (2)

1 CIFO - Chaire d?information financière et organisationnelle
2 GREDEG - Groupe de Recherche en Droit, Economie et Gestion

Purpose – In this paper, we investigate whether formally disclosing an EBITDA number reduces the information asymmetry between managers and investors beyond the release of GAAP earnings. We also assess if EBITDA disclosure enhances the value relevance and the predictive ability of earnings. Design/methodology/approach – We explore the interface between GAAP and non-GAAP reporting as well as the impact of corporate governance on the quality of non-GAAP measures. Findings – Results suggest that EBITDA reporting is associated with greater analyst following and with less information asymmetry. We also document that EBITDA reporting enhances the positive relationship between earnings and stock pricing as well as future cash flows. Moreover, it appears that corporate governance substitutes for EBITDA reporting for stock markets. Hence, EBITDA helps market participants to better assess earnings valuation when a firm’s governance is weak. Inversely, when governance is strong, releasing EBITDA information has a much smaller impact on the earnings-stock price relation. Originality/value – We revisit the issue of how corporate governance relates with earnings quality by considering the potentially confounding effect of EBITDA reporting: it appears that such reporting substitutes for governance in moderating the relation between governance and earnings quality.

Mots clés: EBITDA; Non-GAAP measures; corporate governance

Domaines: Gestion et management

Denis Cormier, Michel Magnan, Samira Demaria. Beyond Earnings: Do EBITDA Reporting and Governance Matter for MarketParticipants?. Managerial Finance, 2017, 43 (2). ⟨halshs-01430191⟩