The reliability indicator for the Chinese Non-GAAP information

The information quality embedded in financial reports disclosure by the Chinese listed companies is very important. However, the lack of the detecting mechanism on accounting information reliability leads not to increase the agency cost, but also to affect the development of the Chinese capital market. Therefore, the purpose of this study is to build an effective indicator to measure the reliability of accounting information, specialized in the earnings releases of the firm. Because the enterprises announce both the GAAP earnings and non-GAAP numeral information, this study applies the accounting conservatism to the mediator of my detecting model. My empirical results show that the indicator calculated by the absolute value of the average correlated coefficients among the GAAP diluted EPS, the non-GAAP numbers and the accounting conservatism is statistically significant. Instead, by the standardization of the Pearson correlated coefficient, my indicator holds the comparability in one firm among different period or in one period among different firms. At last, in robustness I divide my samples into the profitable and the loss firms, and find that the level of the information reliability detected from the profitable firms is significantly larger rather than that from the loss firms. My empirical results contribute to the non-GAAP literature dispute in monitoring earnings quality. Thus, this study could make contributions on the firm’s internal control, the security valuation from outside investors, and the monitoring costs paid by the regulators.