Balancing Investors' Information Needs with Accounting Conservatism: The Role of Voluntary Disclosure of Non-GAAP Earnings

摘要

In this paper, I investigate whether accounting conservatism, or asymmetric timeliness of earnings, contributes to the disclosure of non-GAAP earnings. Earnings that incorporate losses more timely inevitably produce transitory losses, which complicate equity valuation. Companies facing high contracting costs may balance contracting efficiency and equity valuation considerations by supplementing conservative earnings with additional disclosure. Using a hand collected sample, I hypothesize and test whether the disclosure of non- GAAP earnings is particularly prevalent in the presence of accounting conservatism and enhanced valuation concerns. Results in my study show a greater propensity of sample firms to report non-GAAP earnings around stock offerings, but CEO stock compensation or ownership does not appear to motivate the use of non-GAAP earnings. Findings of my study lend little support for the conjecture that non-GAAP earnings are used to inform investors of transitory earnings components from timely loss recognition.