The use of non-GAAP measures in initial public offerings

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The Journal of Corporate Accounting & Finance


This study examines the use of non-GAAP measures (NGMs) in initial public offerings (IPOs). Based on NGMs collected for a sample of 300 IPO firms from 2009 to 2013, we find that 60% of IPO firms disclose NGMs in their registration filings. While a variety of NGMs are used, earnings before interest, tax, depreciation, and amortization (EBITDA) and adjusted EBITDA are the most frequently reported NGMs. The vast majority of the reported NGMs are greater than the firms' GAAP earnings. The results also show that IPO firms are more likely to disclose NGMs when their GAAP earnings are close to benchmarks, when they report special items, and when they have a higher proportion of intangible assets. In addition, the likelihood of reporting NGMs decreases for IPO firms with high R&D expenditures.