Labor Unionization and Non-GAAP Reporting

Abstract

We examine the influence of labor unions on non-GAAP reporting. We find managers are less likely to provide non-GAAP earnings disclosures after employees unionize. This relation arises because non-GAAP earnings metrics typically exclude expenses/losses and thus are higher than GAAP earnings. In contrast, we find managers are more likely to disclose non-GAAP earnings metrics that are lower than GAAP earnings following unionization. We also find that managers exclude fewer persistent expenses in calculating non-GAAP earnings metrics after employees unionize. These results are consistent with managers attempting to make the firm appear less profitable when faced with potential union negotiations. We also provide evidence that employee expenses are lower for unionized firms that do not provide non-GAAP disclosures, indicating one real benefit for managers from withholding these disclosures. Overall, our results suggest that managers modify their non-GAAP reporting to increase leverage in union negotiations and these disclosure choices have real consequences.

Keywords: Labor Unions; Non-GAAP Earnings; Employee Relations; Voluntary Disclosure

JEL Classification: M41, J53