Abstract
This study reports international evidence of the impact of managers’ compensation and board quality on the voluntary disclosure of non-GAAP earnings numbers. We find that compensation contracts linked to firm performance create incentives to disclose a non-GAAP figure in the press release of the earnings announcement. Furthermore, managers that benefit from performance-based compensation tend to report non-GAAP figures at the top of the press release (i.e. in the title), make more adjustments for recurring items to GAAP earnings when calculating non-GAAP financial measures, and avoid reporting reconciliations between non-GAAP and GAAP earnings. We also show that an efficient governance structure at the board level can help restrain management discretionary disclosure decisions regarding non-GAAP reporting, particularly the decision to report non-GAAP measures in the press release of annual earnings and the emphasis given to such measures in the press release.
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