Macroeconomic uncertainty and non-GAAP disclosure

Abstract

This study examines the relation between macroeconomic uncertainty and firms’ non-GAAP disclosure. Using the dispersion of GDP forecasts and the Chicago Board Options Exchange (CBOE) VIX Index to proxy for macroeconomic uncertainty, this study finds that non-GAAP reporting likelihood decreases during periods of high macroeconomic uncertainty. However, for firms that choose to disclose non-GAAP earnings, their non-GAAP exclusions become more transitory, indicating an increase in non-GAAP reporting quality. Further evidence suggests that the increase in non-GAAP reporting quality is driven by the decrease in the persistence of excluded special items. Overall, the findings of this study advance the knowledge of how non-GAAP disclosure changes as macroeconomic uncertainty varies.