Alternative Performance Measures: an assessment after ESMA Guidelines

In July 2016, ESMA Guidelines that set out principles regarding the presentation of non-GAAP measures (ESMA Guidelines on Alternative Performance Measures – APMs) became effective. The guidelines should reduce the mispricing caused by pro forma earnings, and improve investor protection and the transparency of financial information. We provide a preliminary assessment of the impact of these guidelines on 2016 reports on a sample of European Small and medium-sized enterprises (SMEs) listed on regulated markets. Using univariate and multivariate regressions, we demonstrate a significant relationship between Alternative performance measures disclosed in the press releases and stock prices in the period after the ESMA Guidelines. APMs are relevant information for investors and more adherence to the ESMA reporting guidelines may generate a positive impact on stock prices and short-term returns. The findings also contribute to demonstrate that the European regulation about non-GAAP measures will reduce the asymmetry of information between users, particularly between capital owners and management, which may lead to increased users’ confidence since they will be able to evaluate more effectively issuers’ performance.