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The Effect of SEC’s Comment Letters on the Comparability of Non-GAAP Earnings

earnings based on the model provided by De Franco et al. (2011). Our results show
that the comparability of non-GAAP earnings is improved after firms received non-
GAAP comment letters. This suggests that the quality of information disclosed can be
improved through direct SEC reviews of a firm’s filed reports. Our findings also contribute

to the understanding of non-GAAP earnings comparability and SEC enforcement.
Although many studies have explored comparability for GAAP earnings, research on the
comparability of non-GAAP earnings is limited, with the notable exception of research on

voluntary disclosure. Previous studies have examined the effect of legal regimes on the
relevance and reliability of non-GAAP earnings (Kolev, Marquardt, and McVay, 2008;
Heflin and Hsu, 2008; Black, Christensen, Joo, and Schmardebeck, 2017), but the impact
of the SEC review process on comparability remains unclear. Our research contributes the
stem of non-GAAP legal regimes literature.

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