The number of firms that voluntarily disclose their non-Generally Accepted Accounting Principles (Non-GAAP) earnings in their quarterly press releases along with their GAAP numbers to help explain their performances to stakeholders has dramatically increased. This scenario suggests a widespread acceptance of non-standard performance measures during valuation. In addition, manager-disclosed Non-GAAP earnings have raised the wide attention of both regulators and academic researchers. The stream of research that investigates the factors influencing Non-GAAP earning disclosures has also grown accordingly. However, the research as to whether and how the supply chain relationship affects manager-disclosed Non-GAAP earnings is surprisingly rare. In the U.S., nearly 50% of public firms are engaged in major customer–supplier relationships. The efficient information sharing between suppliers and customers is generally necessary and important for building and maintaining close customer–supplier relationships in supply chains. From the implicit contracting perspective, prior studies in accounting literature have documented a transparency commitment by suppliers in long-term relationships with customers, especially when customers have superior bargaining power over suppliers. Therefore, the purpose of this study is to understand how such a reporting environment influences the managers’ voluntary reporting of Non-GAAP earnings. More specifically, in line with the literature on transparency commitment of suppliers within supply chains, this study explores the relation between supplier dependence in a customer–supplier relationship and manager-disclosed Non-GAAP earnings policy to fill the prior research gap.

I investigate whether and how supplier dependence on major customers for sales affects the likelihood and quality of manager-disclosed Non-GAAP earnings in press releases. The empirical results can be summarized as follows. First, supplier managers are more likely to disclose Non-GAAP earnings with the increase in supplier dependence on major customers for sales. Second, the positive relation between supplier dependence and likelihood of Non-GAAP earnings is more pronounced when the supplier and its customers are engaged in better relationship-specific investments, when the customers’ switching costs are lower, and when the costs of private information acquisition for customers are higher. Moreover, supplier dependence on major customers for sales increases the quality of Non-GAAP earnings disclosed by supplier managers. Finally, the positive relation between supplier dependence and quality of Non-GAAP earnings is more pronounced when the relationship-specific investments are better between suppliers and customers, and when the customer–supplier relationships are at risk. Overall, the results suggest that the customers’ bargaining power induces suppliers with greater reliance on major customers to provide additional value-relevant Non-GAAP reporting in press releases to fulfill the transparency commitment by suppliers within supply chains.

Compared with the existing literature, this dissertation aims to contribute to the following areas:

First, from the supply chain perspective, this study extends the literature on the determinants of managerial Non-GAAP earnings disclosure policies. Starting with GAAP-based numbers, managers generally exclude some items they deem to be non-recurring or non-cash and disclose Non-GAAP metrics in their quarterly press releases along with their GAAP numbers to help explain their core earnings to stakeholders. Prior studies have documented numerous factors related to manager-disclosed Non-GAAP earnings, such as Regulation G, litigation risks, analyst coverages, creditors, CEO personality, and so on. However, no research has investigated whether customer–supplier relationships significantly influence manager-disclosed Non-GAAP earnings. My research finds that supplier dependence not only improves the likelihood in which supplier managers disclose Non-GAAP earnings but also improves the quality of Non-GAAP earnings disclosed by supplier managers. Therefore, this study fills the research gap by providing empirical evidence of the important role of supplier dependence on major customers for sales in shaping the managers’ Non-GAAP earnings reporting policies.

Second, this study extends the literature on the consequences of customer–supplier relationships by offering evidence in which policies for the suppliers’ Non-GAAP earnings disclosure are influenced by supplier dependence on major customers for sales. In line with the literature on how information demand from customers can influence the suppliers’ corporate financial disclosures, this research explores whether and how the role played by customer–supplier relationship in the likelihood and quality of manager-disclosed Non-GAAP earnings. In particular, supplier managers are more likely to disclose Non-GAAP earnings when the supplier is dependent on major customers for sales, when the supplier generates a higher percentage of revenues from its major customers, and when the supplier’s sales to major customers are more concentrated among few of these customers. Moreover, Non-GAAP exclusions, which are excluded by supplier managers, become more transitory with the increase in supplier dependence on major customers for sales.

Third, this study extends the literature on the incentives of manager-disclosed Non-GAAP earnings by providing new evidence from the supply chain perspective. The debate is fierce regarding the incentives of manager-disclosed Non-GAAP earnings with respect to informativeness versus opportunism. More recent academic research using the latest hand-collected data find that, on the average, the dominative incentive of Non-GAAP earnings disclosures is to inform stakeholders about the core performances or value-relevant information after excluding certain transitory items. However, early evidence depicts the opportunistic use of Non-GAAP earnings and ongoing regulatory. The concerns even traverse the standard setting in which Non-GAAP earnings reporting can be potentially misleading and Non-GAAP earnings can be opportunistically used. My study supports the informative story by providing evidence of customers’ bargaining power being able to induce suppliers with greater reliance on major customers to provide additional value-relevant Non-GAAP reporting as a means of achieving efficient information sharing within supply chains.

Finally, this study improves our understanding of the interplay between information demand in supply chain and corporate voluntary information disclosure. The efficient sharing of information between suppliers and customers is generally necessary and important in building and maintaining close customer–supplier relationships in supply chains. From the implicit contracting perspective, several studies in the accounting literature find a transparency commitment by suppliers in their long-term relationships with customers, especially when customers have superior bargaining power over suppliers. This line of literature provides evidence on the important role of close customer–supplier relationships in shaping corporate information disclosure decisions. However, a competing argument has been forwarded as to how customer–supplier relationships will influence the final public information, as suppliers and customers can exchange corporate information through public and private channels. On the one hand, public information sharing between suppliers and customers is more credible than private information channels because of litigation risks and reputation loss related to public information disclosure. On the other hand, close customer–supplier relationship facilitates private information acquisition, thereby reducing the overall demand for public disclosure. My research finds that managers are more likely to disclose Non-GAAP earnings in press releases with the increase in reliance on major customers for sales. This scenario suggests that private information sharing is not a perfect substitute (if any) for public Non-GAAP earnings disclosures.