Do Managers Issue More Voluntary Disclosure When GAAP Limits Their Reporting Discretion in Financial Statements?

Journal of Accounting Research, Volume 60, Issue 1

Posted: 3 Apr 2022

See all articles by Paul Hribar

Paul Hribar

University of Iowa - Department of Accounting; University of Iowa - Henry B. Tippie College of Business

Richard Mergenthaler

Penn State University

Aaron Roeschley

University of Kentucky - Von Allmen School of Accountancy

Spencer Young

The University of Oklahoma

Chris X. Zhao

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2022

Abstract

We examine whether managers provide more voluntary disclosure when GAAP limits their reporting discretion in financial statements. We find managers are more likely to disclose non-GAAP earnings, issue more management forecasts, and provide longer yet more readable management discussion and analysis (MD&A) disclosures when GAAP limits their discretion. These effects are stronger when there is greater demand for information and better monitoring. In contrast, these effects are weaker when managers have incentives to manage earnings. Difference-in-differences analyses around standard changes provide further evidence that managers make more non-GAAP adjustments and are more likely to discuss the standard and its underlying transaction in the MD&A when a new standard limits their discretion more than its predecessor. Collectively, our results suggest managers use voluntary disclosure channels to convey information when GAAP limits their ability to recognize such information in financial statements.

Keywords: managerial discretion; mandatory financial reporting; 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., Do Managers Issue More Voluntary Disclosure When GAAP Limits Their Reporting Discretion in Financial Statements? (March 1, 2022). Journal of Accounting Research, Volume 60, Issue 1, Available at SSRN: https://ssrn.com/abstract=4072958

Paul Hribar

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

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)

Penn State University ( email )

University Park, PA 16802-3306
United States

Aaron Roeschley

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

Spencer Young

The University of Oklahoma ( email )

Norman, OK 73019
United States

Chris X. Zhao

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law ( email )

Hong Kong

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