Persistence of non-GAAP measures and the quality of their disclosure: evidence from Brazilian banks

Abstract

This paper aims to investigate the relationship between the disclosure of qualitative information and the persistence of quantitative non-GAAP (generally accepted accounting principles) recurring earnings measures in Brazilian banks. Prior research focuses predominantly on the effectiveness of quantitative non-GAAP measures, such as the composition of exclusions. There is a scarcity of studies addressing the quality of qualitative non-GAAP information and its influence on reported financial metrics. With the broadening of debates surrounding the regulation of non-GAAP information, this research stands out by providing evidence from the Brazilian banking context, where quantitative non-GAAP measures are regulated, but qualitative ones are not. The findings strengthen the arguments in favor of regulating qualitative disclosures as well. This study contributes directly to users of non-GAAP information and banking market regulators by indicating that improvements in qualitative disclosures can enhance the usefulness and reliability of quantitative metrics in the decision-making process. An earnings persistence model was applied to 31 Brazilian banks (both publicly traded and private) that disclosed quarterly non-GAAP information from 2010 to 2023. The qualitative information was transformed into an index for the empirical analysis.