Beyond Earnings Quality: Evaluating the Quality of Voluntary Corporate Financial Reporting Practices

Abstract

Managers use multiple reporting practices to convey their financial performance to investors. Just as there is variation in “earnings quality” of GAAP financial reporting, these other “generally accepted” reporting practices also vary in quality. We propose a framework to assess the quality of generally accepted reporting practices. Using evidence from academic research we provide checklists of indicators to assess the quality of the mosaic of heterogeneous information reported by management. We focus on three reporting practices: non-GAAP earnings (alternative performance measures), management guidance (forward-looking information), and conference calls (interactive communication channels). We compare the reporting practices of two firms to illustrate the usefulness of our checklist in identifying quality differences. Our framework can be applied to additional reporting practices and to reporting practices in other settings (e.g., IFRS or countries with unique institutional details). 

Keywords: Information quality, voluntary disclosure quality, disclosure informativeness, non-GAAP reporting, management guidance, conference calls

JEL Classification: G12, M41