The many faces of earnings before interest, tax, depreciation and amortisation (EBITDA): Assessing the decision usefulness of EBITDA disclosure by Johannesburg Stock Exchange-listed companies

Journal of Economic and Financial Sciences


 
 
Field Value
 
Title The many faces of earnings before interest, tax, depreciation and amortisation (EBITDA): Assessing the decision usefulness of EBITDA disclosure by Johannesburg Stock Exchange-listed companies
 
Creator Mey, Mattheus T. Lamprecht, Christiaan
 
Subject EBITDA; non-GAAP; decision useful; comparability; faithful representation; inconsistency
Description Orientation: The voluntary disclosure of non-Generally Accepted Accounting Principles (non-GAAP) earnings may lack decision-usefulness if not faithfully represented or comparable. Commonly accepted as being well defined, earnings before interest, tax, depreciation and amortisation (EBITDA) may be misleading if labelled, defined and calculated inconsistently.Research purpose: To assess the decision-usefulness of EBITDA disclosure by Johannesburg Stock Exchange (JSE)-listed companies.Motivation for the study: Prior research on voluntary disclosure largely excluded EBITDA from its focus, accepting it as standardised.Research approach/design and method: A quantitative content analysis was used to analyse the EBITDA disclosure in 220 Stock Exchange News Service (SENS) reports in which JSE-listed companies reported their annual results for the period 2014–2016.Main findings: Companies inconsistently labelled, defined and calculated EBITDA. Twenty-four per cent of the SENS reports labelled and defined EBITDA as earnings before interest, tax, depreciation and amortisation, but calculated it by adjusting for other items as well. Companies’ definitions of EBITDA also differed widely, with 27 different definitions identified in 52 SENS reports that disclosed an unmodified EBITDA label.Practical/managerial implications: Existing JSE reporting requirements appear lacking in ensuring that companies disclose EBITDA that is faithfully represented and comparable. The identified diversity of definitions has implications where EBITDA is used for valuation and contracting purposes.Contribution/value-add: The study contributes to the voluntary disclosure literature by focussing on a non-GAAP earnings measure that has largely been ignored by prior research, namely EBITDA. Empirical evidence is presented on the diversity that exists in EBITDA disclosure by JSE-listed companies.
 
Publisher AOSIS
 
Contributor
Date 2020-07-09
 
Type info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion —
Format text/html application/epub+zip text/xml application/pdf
Identifier 10.4102/jef.v13i1.488
 
Source Journal of Economic and Financial Sciences; Vol 13, No 1 (2020); 13 pages 2312-2803 1995-7076
 
Language eng
 
Relation https://jefjournal.org.za/index.php/jef/article/view/488/988 https://jefjournal.org.za/index.php/jef/article/view/488/987 https://jefjournal.org.za/index.php/jef/article/view/488/989 https://jefjournal.org.za/index.php/jef/article/view/488/986
 
Rights Copyright (c) 2020 Mattheus T. Mey, Christiaan Lamprecht https://creativecommons.org/licenses/by/4.0