Managerial sentiment and non-GAAP earnings disclosure : evidence from terrorist attacks

We examine how managerial sentiment affects non-generally accepted accounting principles (non-GAAP) earnings disclosure. Following recent studies, we use terrorist attacks in the US to measure the exogenous shocks to managerial sentiment. We find that (1) firms located in the attacked metropolitan areas are less likely to report non-GAAP earnings; (2) there is a significant decline in non-GAAP exclusions for affected firms, indicating more conservative non-GAAP earnings disclosure; (3) the effect of pessimistic sentiment on non-GAAP earnings disclosure is more pronounced when terrorist-attack events are perceived as more salient, and when managers are less experienced. Our main findings are robust to a battery of robustness tests. Overall, results of this study suggest that shocks induced by exogenous negative events affect managerial sentiment and corporate disclosure practice.