Industry Competition and Non-GAAP Disclosures

Accounting and Business Research

2 Pages Posted: 20 May 2019 Last revised: 16 Jul 2020

See all articles by Helena Isidro

Helena Isidro

ISCTE-IUL Instituto Universitario de Lisboa

Ana Cristina Marques

Norwich Business School - University of East Anglia

Date Written: June 30, 2020

Abstract

We examine the role of industry-level product market competition on non-GAAP disclosure decisions. We consider traditional measures of industry competition (concentration, price-cost margin, and set up costs), and large reductions in import tariff rates that identify an exogenous increase in competition. We find that competition intensity influences the likelihood of non-GAAP disclosure and the magnitude of non-GAAP exclusions. Our evidence suggests that strong competition encourages managers to disclose higher non-GAAP earnings. However, when competition is strong, firms with low performance relatively to the industry exclude smaller amounts. We also find that in competitive environments, managers are more likely to provide reconciliations and are less likely to exclude recurring items that are commonly excluded by other firms in the industry. These findings indicate that industry competition has a positive influence on the transparency of non-GAAP disclosures.

Keywords: pro forma earnings, alternative performance measures, non-IFRS earnings, industry concentration, proprietary costs, financial performance

JEL Classification: M21, M41

Suggested Citation

Isidro, Helena and Marques, Ana Cristina, Industry Competition and Non-GAAP Disclosures (June 30, 2020). Accounting and Business Research, Available at SSRN: https://ssrn.com/abstract=3377211 or http://dx.doi.org/10.2139/ssrn.3377211

Helena Isidro (Contact Author)

ISCTE-IUL Instituto Universitario de Lisboa

Av. das Forças Armadas
Lisboa, 1649-026
Portugal

Ana Cristina Marques

Norwich Business School - University of East Anglia ( email )

Norwich
NR4 7TJ
United Kingdom

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