The Value Relevance and Informativeness of GAAP and Non-GAAP Earnings for Financial Firms During the Global Financial Crisis

This study investigates the value relevance and information content of GAAP and non-GAAP earnings for financial firms during the global financial crisis (GFC). We adopt the Ohlson (1995) valuation model to test value relevance and the Cumulative Abnormal Returns (CAR) model to test information content. We use earnings from operations adjusted to exclude special items under GAAP and two alternative non-GAAP earnings measures comprising I/B/E/S earnings and Standard & Poors (S&P) core earnings. We draw our sample of US publicly traded banks and diversified financial firms between 2002 and 2012. In our Ohlson (1995) model, the results show that GAAP earnings are value relevant during the GFC period but not in the pre-GFC and post-GFC periods. In contrast, using the CAR model we find GAAP earnings are informative in the pre-GFC and post-GFC periods but not during the GFC.