GAAP Restrictions and Voluntary Disclosure

55 Pages Posted: 4 Jan 2019

See all articles by Paul Hribar

Paul Hribar

University of Iowa - Henry B. Tippie College of Business

Richard Mergenthaler

The University of Arizona - Eller College of Management

Aaron Roeschley

University of Arizona - Department of Accounting

Spencer Young

University of Arizona - Eller College of Management

Chris X. Zhao

University of Iowa - Henry B. Tippie College of Business

Date Written: January 1, 2019

Abstract

We examine whether managers provide additional voluntary disclosures when accounting standards are more restrictive. We estimate restrictiveness by counting the number of times restrictive modal verbs are mentioned in the text of each standard. Our primary findings indicate managers issue more earnings forecasts and are more likely to disclose non-GAAP earnings when GAAP standards are more restrictive. We find the relation between standard restrictiveness and voluntary disclosure is stronger when investors demand more information and when there is better external oversight, and weaker when firms have conflicting reporting objectives. We also conduct a difference-in-difference analysis examining the use of non-GAAP around standard changes that both increase and decrease restrictiveness. We find managers are more likely to exclude (include) expenses related to the standard change when the new standard is more (less) restrictive. Collectively, our results suggest managers use other channels to convey important information when accounting standards restrict their ability to do so in GAAP financial statements.

Keywords: managerial discretion, mandatory disclosure, voluntary disclosure, quality of accounting information

JEL Classification: M40, M41, M48, M49

Suggested Citation

Hribar, Paul and Mergenthaler, Richard Dean and Roeschley, Aaron and Young, Spencer and Zhao, Chris X., GAAP Restrictions and Voluntary Disclosure (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3308900 or http://dx.doi.org/10.2139/ssrn.3308900

Paul Hribar

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

Richard Dean Mergenthaler (Contact Author)

The University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States
520-621-2929 (Phone)
520-621-3742 (Fax)

HOME PAGE: http://https://accounting.eller.arizona.edu/people/rick-mergenthaler

Aaron Roeschley

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States

Spencer Young

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Chris X. Zhao

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States

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