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The details matter: SEC regulatory guidance and informativeness in non-GAAP disclosure decisions

Author

Listed:
  • Hrishikesh Desai
  • Michael Davern

Abstract

Purpose - This paper aims to examine how managers make non-generally accepted accounting principles (GAAP) exclusion decisions depending on the regulatory guidance provided and their motivations. Guidance detail is a double-edged sword: resolving uncertainty but risking rule-based compliance over principled judgment. Design/methodology/approach - This paper uses the context of non-GAAP measures in reporting, given the history of Securities and Exchange Commission changes in guidance detail. Drawing on theories of epistemic motivation and process accountability, this paper manipulates the goal of management (informativeness vs. opportunism) and guidance detail to examine effects on management decisions to exclude an ambiguous charge. Findings - The 2×2 between participants experiment with 132 managers reveals that more detailed guidance increases likelihood of exclusion of an ambiguous charge. This paper further finds that this exclusion is more likely when management is given an informativeness goal, a result of a mediating effect of epistemic motivation. However, these findings only hold at low levels of process accountability. Practical implications - The findings regarding the psychological concepts recognize the influence of perceived decision uncertainty by suggesting how managers respond to the level of regulatory guidance detail, offering regulators and auditors a basis for understanding and anticipating managerial reporting choices. Also, awareness of heightened epistemic motivation under the informativeness goal provides a nuanced practical understanding of non-GAAP decision drivers. Finally, the finding that effects are more pronounced for managers with lower process accountability highlights the significance of organizational accountability structures in guiding managerial choices, which can inform board-level governance and control decisions. Originality/value - Pragmatically, this paper finds that detailed guidance leads to more appropriate exclusion decisions under a goal of informativeness but finds no such evidence where the goal is opportunism. No prior study has examined how the level of detail in guidance affects managers’ disclosure choices.

Suggested Citation

  • Hrishikesh Desai & Michael Davern, 2024. "The details matter: SEC regulatory guidance and informativeness in non-GAAP disclosure decisions," Meditari Accountancy Research, Emerald Group Publishing Limited, vol. 32(6), pages 2083-2115, June.
  • Handle: RePEc:eme:medarp:medar-04-2023-1975
    DOI: 10.1108/MEDAR-04-2023-1975
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    More about this item

    Keywords

    Non-GAAP; SEC guidance; Informativeness; Opportunism; Judgment; Decision-making; Uncertainty; Epistemic motivation; Process accountability; G38; M40; M41; M48;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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