Credit Default Swaps and Non-GAAP Earnings Disclosure

47 Pages Posted: 10 Jun 2020

See all articles by Dirk E. Black

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy

Kalin S. Kolev

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

Binghao (Jimmy) Zhao

Southwestern University of Finance and Economics (SWUFE) - School of Accountancy

Date Written: May 29, 2020

Abstract

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

Black, Dirk E. and Kolev, Kalin S. and Zhao, Binghao (Jimmy), Credit Default Swaps and Non-GAAP Earnings Disclosure (May 29, 2020). Available at SSRN: https://ssrn.com/abstract=3614753 or http://dx.doi.org/10.2139/ssrn.3614753

Dirk E. Black (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Kalin S. Kolev

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

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

Binghao (Jimmy) Zhao

Southwestern University of Finance and Economics (SWUFE) - School of Accountancy ( email )

Chengdu
China

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