Role of stock price informativeness in shaping non-GAAP earnings disclosures

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)266-283
Journal / PublicationAsia-Pacific Journal of Accounting and Economics
Volume30
Issue number1
Online published6 Jan 2022
Publication statusPublished - 2023

Abstract

Using 107,411 firm-quarter observations from 2004 to 2017, we find that managers are less likely to report non-GAAP earnings with the increase of stock price informativeness, suggesting that information from stock prices discourages non-GAAP reporting from firm managers. We further show that stock price informativeness influences managerial incentive of non-GAAP reporting through two channels: (a) direct monitoring and (b) the improvement in the information environment. Accordingly, we find that the constraining effect is more pronounced when a firm’s monitoring mechanisms are weak and when the pre-disclosure information environments are poor. In addition, we find that the quality of non-GAAP earnings improves with the increase of stock price informativeness. Collectively, our results are consistent with the notion that information from the secondary stock price plays an important role in guiding managerial non-GAAP earnings disclosures.

Research Area(s)

  • Non-gaap earnings, stock price informativeness, voluntary disclosures