Managerial Risk-Taking Incentives and Non-GAAP Earnings Disclosures

Abstract:     
We investigate the association between risk-taking incentives provided by stock-based compensation arrangements and non-GAAP financial disclosures. Controlling for compensation to stock price sensitivity, we find that managers with higher compensation to stock volatility sensitivity (vega) are more likely to be associated with voluntary non-GAAP earnings information disclosures. In addition, higher-vega managers are found to be associated with more frequent and less opportunistic non-GAAP earnings information disclosures. Robust to alternative specifications and estimations, our findings suggest that compensation arrangements can encourage managers to make more, higher-quality voluntary non-GAAP disclosures.

Keywords: Executive Compensation, Risk-Taking, Managerial Incentives, Disclosure Policy, Non-GAAP Earnings

JEL Classification: G30, J33, M4, M52

Accepted Paper Series