To what extent could alternative performance measures be considered as sector-based ?

Abstract

Each year companies publish information about their financial results mainly to enhance their reputation, attract new investors and show they perform well. In corporate reporting such as annual reports, the management has the discretion to adjust IFRS or GAAP results in order to better reflect the company’s performance for the year. These adjusted measures, called non- GAAP measures or Alternative Performance Measures (APMs), may influence and bias the view users of corporate reporting perceive on a company’s performance standing. As they are not standardized, this results in an open invitation to tailor-made, less transparent measures and sometimes unethical behaviors on behalf of preparers of non-GAAP information. Considering the wide adoption of these measures among many listed companies, the question is whether APMs are disclosed seamlessly across sectors or specifically disclosed according to a company’s industry. The purpose of this thesis is to determine to what extent companies are more inclined to report sector-based measures according to their performance’s perception. The findings of this thesis show that many APMs are disclosed based on the company’s particular sector. These non-GAAP measures are very specific to better reflect the underlying performance of a company, making comparability within sectors easier but across sectors next to impossible. Results also show that several APMs are reported in various sectors, giving rise to certain non-GAAP measures a more universal use. These APMs are disclosed by many companies, whatever the sector they belong to, and can be characterized as traditional. Based on our analysis, only a few traditional non-GAAP measures, similarly labeled, present an identical calculation among companies coming from different sectors. On the other hand, certain traditional APMs are similarly labeled across industries but are not identically calculated. These so-called traditional APMs thus can join the category of sector-specific APMs. Worse, certain companies belonging to the same industry express tailor- made calculations of similarly labeled non-GAAP measures, making these measures unclear and unreliable for users. As a conclusion, only a few APMs can be qualified as universal and traditional non-GAAP measures, whatever the sector. The conclusion of our thesis that can be drawn is that Alternative Performance Measures are mostly sector-specific. A possible recommendation would be to set up more sector-based guidelines to improve APMs’ consistency and comparability within sectors.