Do Investors Respond Differently to Non-GAAP Earnings After Material GAAP Restatements?

SYNOPSIS I investigate whether investors change their responsiveness to non-GAAP earnings following the revelation of past GAAP reporting failures. Using an event-study design, I find that the earnings response coefficient (ERC) for non-GAAP earnings declines by 40.4 percent after the announcement of material GAAP restatements, suggesting that investors view non-GAAP earnings as less informative once the reliability of the underlying GAAP framework is called into question. The decline in non-GAAP ERCs is not explained by changes in delayed investor reactions or non-GAAP-related SEC comment letters. Taken together, the results are consistent with a credibility spillover across mandatory and voluntary reporting frameworks, whereby investors use GAAP signals to infer the credibility of non-GAAP earnings. My findings underscore the interconnectedness of GAAP and non-GAAP reporting and contribute to ongoing debates about the credibility of non-GAAP measures. Data Availability: The data are available from the sources indicated in the text. JEL Classifications: G14; D82; M41.