Abstract:
PURPOSE – This paper aims to investigate the pricing of discretionary earnings in South Africa. This is a
unique setting, as South African listed firms also reportmandatory non-GAAP earnings (“headline earnings”).
DESIGN/METHODOLOGY/APPROACH – Results are based on multivariate regression analyses for South
African firms that report from 2010 to 2019.
FINDINGS – Findings show that the value-relevance of discretionary earnings exceeds that of both GAAP
earnings and headline earnings. In addition, placement of discretionary earnings reconciliations
communicates information about the decision-usefulness of earnings.
ORIGINALITY/VALUE – Discretionary earnings remain the most value-relevant earnings measure, despite the
divergent decision-useful characteristics offered by headline earnings and GAAP earnings. Therefore, the
most decision-useful earnings reflect unique industry or firm characteristics rather than the assurance arising
from regulation.
