The Effect of Voluntary Clawback Adoption on Non-GAAP Reporting

Forthcoming in Journal of Accounting and Economics

Baruch College Zicklin School of Business Research Paper No. 2018-09-01

63 Pages Posted: 16 Jun 2013 Last revised: 28 Sep 2018

See all articles by Hangsoo Kyung

Hangsoo Kyung

The Chinese University of Hong Kong

Hakyin Lee

City University of New York - Stan Ross Department of Accountancy

Carol A. Marquardt

City University of New York (CUNY) – Baruch College

Date Written: September 19, 2018

Abstract

We examine the effect of voluntary adoption of clawback provisions on non-GAAP earnings disclosures. Prior literature documents that voluntary clawback adoption improves financial reporting quality by increasing the costs of misstating GAAP earnings. However, managers may respond to perceptions of reduced discretion over GAAP reporting by increasing their reliance on non-GAAP earnings disclosures. Using a propensity score matched sample, we find that non-GAAP earnings disclosure frequency increases and non-GAAP exclusion quality decreases after clawback adoption, consistent with a more opportunistic use of non-GAAP reporting. Additional cross-sectional tests help support this interpretation.

Keywords: Dodd-Frank Act, Clawback, Non-GAAP, Pro forma, Voluntary Disclosure

JEL Classification: G30, L50, M41

Suggested Citation

Kyung, Hangsoo and Lee, Hakyin and Marquardt, Carol, The Effect of Voluntary Clawback Adoption on Non-GAAP Reporting (September 19, 2018). Forthcoming in Journal of Accounting and Economics; Baruch College Zicklin School of Business Research Paper No. 2018-09-01. Available at SSRN: https://ssrn.com/abstract=2279528 or http://dx.doi.org/10.2139/ssrn.2279528

Hangsoo Kyung

The Chinese University of Hong Kong ( email )

School of Accountancy
No.12 Chak Cheung Street
Shatin, New Territorries
Hong Kong
+852-3943-1956 (Phone)

Hakyin Lee

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Carol Marquardt (Contact Author)

City University of New York (CUNY) – Baruch College ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3241 (Phone)

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