The Effect of Investor Inattention on non-GAAP Disclosure

48 Pages Posted: 16 Nov 2017 Last revised: 2 Nov 2021

See all articles by Riddha Basu

Riddha Basu

George Washington University - School of Business; Northwestern University - Department of Accounting Information & Management

Spencer Pierce

Florida State University - College of Business

Andrew Stephan

University of Colorado at Boulder Leeds School of Business

Date Written: November 1, 2019

Abstract

We examine whether investor inattention influences managers’ non-GAAP earnings disclosures. Hirshleifer and Teoh’s (2003) theoretical model predicts that managers are more likely to disclose aggressive non-GAAP metrics when investors are inattentive. Employing a measure that captures exogenous variation in investor inattention, we find that managers provide more aggressive non-GAAP disclosures when inattention is high. Consistent with managers exploiting investors’ limited attention, we find that the stock price response to non-GAAP exclusions is stronger when investors are inattentive and that managers are more likely to respond to inattention with aggressive non-GAAP disclosures if they sell shares following the disclosure.

Keywords: Voluntary Disclosure, Investor Attention, Institutional Investors, Non-GAAP Disclosure

JEL Classification: M40, M41, G20, G23

Suggested Citation

Basu, Riddha and Pierce, Spencer and Stephan, Andrew, The Effect of Investor Inattention on non-GAAP Disclosure (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=3071399 or http://dx.doi.org/10.2139/ssrn.3071399

Riddha Basu

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Northwestern University - Department of Accounting Information & Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Spencer Pierce (Contact Author)

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

Andrew Stephan

University of Colorado at Boulder Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

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