Credit Default Swaps and Non-GAAP Earnings Disclosure
47 Pages Posted: 10 Jun 2020
Date Written: May 29, 2020
We examine the effect of credit default swap (CDS) coverage on voluntary disclosure using firm provided non-GAAP earnings as a laboratory. For a large sample of U.S. firms, we find that for companies with CDS coverage, the persistence of non-GAAP exclusions is lower, implying higher disclosure quality. The effect manifests across a range of performance measures and measurement windows and is strongest among non-investment-grade firms, entities for which monitors are more likely to rely on public accounting reports. This improvement in quality comes as a counterpoint to a decrease in the frequency of non-GAAP disclosure among firms that experience CDS coverage initiation. Collectively, our findings suggest firms counteract the perceived negative externalities associated with CDS coverage with higher-quality voluntary disclosure.
Keywords: Non-GAAP earnings, Non-GAAP exclusions, Credit default swaps, Voluntary disclosure quality
JEL Classification: G14, M21, M41
Suggested Citation: Suggested Citation