Abstract
Purpose: This paper investigated the potential opportunistic disclosure of ‘earnings before interest, tax, depreciation and amortisation’ (EBITDA) by analysing the association between the quality of EBITDA reconciliations and factors associated with opportunistic disclosure.
Design: Ordinary least squares estimation was used to regress an EBITDA reconciliation score on factors associated with opportunistic disclosure for a sample of stock exchange news service reports of companies listed on the Johannesburg Stock Exchange (JSE) for the financial years 2014 through 2016.
Findings: The results suggest that the management of JSE-listed companies signal the credibility of EBITDA as a performance measure by providing higher quality reconciliations, rather than using poor quality EBITDA reconciliations to mask potential opportunistic disclosure.
Practical implications: The results suggest that JSE-listed companies use EBITDA disclosure for informational purposes, rather than for opportunistic purposes.
Value: This paper contributes to a limited corpus of research on EBITDA as non-GAAP earnings measure. It provides support for the adequacy of the JSE’s disclosure requirements in facilitating high-quality financial reports. The results are timely as the JSE is contemplating whether to issue expanded disclosure requirements intended to limit the potential opportunistic use of non-GAAP earnings disclosure.
Notes
1 SENS reports are company press releases issued through the JSE’s news platform.
2 Guillamon-Saorin et al. (Citation2017) included in their selection model dummy variables for when non-GAAP earnings beat analysts’ consensus forecasts and when a company reported extraordinary items. Since analyst forecasts were lacking on the sample in this paper, the related variable was excluded. Furthermore, IFRS prohibits companies presenting IFRS financial statements to disclose items as extraordinary and therefore the related variable was not included (IASB, Citation2019a).