Earnings disclosure: the impact of non-GAAP on information asymmetry
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2021-12-03
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en
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This study examines to what extent non-GAAP earnings disclosure reduces information asymmetry between managers and investors, and whether corporate governance mechanisms moderate this relationship. The study hypothesizes that non-GAAP earnings disclosure reduces information asymmetry, which is moderated by cooperate governance mechanisms. Information asymmetry is measured by the quarterly and monthly bid-ask spread before and after disclosure, spread ratio and the analyst forecast error. However, the results show that there is no significant effect of non-GAAP disclosure on the bid-ask spread, and there is no difference in effect between the periods before and after disclosure. Similarly, no effect is found on the spread ratio. Regarding the forecast error, a positive relationship is detected, meaning that non-GAAP earnings disclosure increases information asymmetry. Furthermore, there is no moderating effect of the corporate governance mechanisms ownership concentration, executive compensation, board monitoring effectiveness, analyst coverage and audit quality on this relationship. For discretionary accruals, a robustness check for audit quality, a minimal negative interaction effect with non-GAAP earnings disclosure is found. Since the results show that non-GAAP earnings disclosure does not reduce information asymmetry but might even be misleading for investors, non-GAAP earnings disclosure should not be stimulated and could even be monitored or regulated.
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Faculteit der Managementwetenschappen