Resumo

Non-GAAP earnings measures have been extensively investigated in the U.S. setting. Most of previous evidence focus on U.S. firms and environment (Herr et al., 2022). Still, NGE are widespread reported in many other jurisdictions, like Australia, Brazil, Canada, France, Germany and UK, and European countries. We complement previous research on the matter by providing (i) new results from empirical data from jurisdictions not investigated until now; (ii) insights into existing research, which are few; and (iii) evidence to better discuss existing contradictory results.

In this paper we investigate the association of main institutional factors over non-GAAP earnings reporting decision for an international sample. We add to the literature by addressing Herr, Lorson and Pilhofer (2022) research call and examine the role of institutional factors on non-GAAP earnings reporting choice in a cross-country setting. To the best we know, this is the third paper to investigate non-GAAP earnings determinants for an international sample.

Institutional factors are country-level aspects that impose pressures on firms. Regarding disclosure practices, those factors are associated with changes in disclosure characteristics and behavior. Accordingly, a firm’s reporting incentives are shaped by its institutional factors and economic environment (Healy & Palepu, 2001; Holthausen, 2009; Nobes, 2013). There is a claim for new evidence to enhance the current debate on the reporting motives and economic consequences of NGE measures in other settings (Herr et al., 2022).

Using a logistic regression model we test the determinants of non-GAAP earnings to test whether country-level and firm-specific factors affect NGE reporting choice.

Results for the individual models confirms, except for H2, all hypothesis, suggesting that firms from countries with non-GAAP measures regulation or guidance, in more developed equity markets, with higher investor protection and in a common law legal system origin, are more likely to disclose NGE.

Our confirmed hypothesis is that firms in countries with institutional factors that are equal to the ones U.S. firms face are more likely to disclose non-GAAP earnings. In this sense, our results confirm past studies (Isidro & Marques, 2015; Koning et al., 2010; Charitou et al., 2018) that countries with better economic conditions and under a high-quality reporting scenario put pressure on firms to provide additional performance measures (NGE) as they face stronger incentives to not manage GAAP earnings (Isidro & Marques, 2015; Cormier et al., 2022).

Main references: Leuz, C., & and Wysocki, D. P. (2016). The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research. Journal of Accounting Research, 54(2), 525–622. Holthausen, R. W. (2009). Accounting standards, financial reporting outcomes, and enforcement. Journal of Accounting Research, 47, 447-548. Young (2014). The drivers, consequences and policy implications of non-GAAP earnings reporting. Accounting and Business Research, 44, 444-465. https://doi.org/10.1080/00014788.2014.900952