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Economic Policy Uncertainty and Firms’ Non-GAAP Reporting

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  • Xia Chen
  • Xuejun Jiang
  • Louise Yi Lu
  • Yangxin Yu

Abstract

Using the US economic policy uncertainty (EPU) index developed by Baker, S. R., Bloom, N., & Davis, S. J. [2016. Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024], we examine the impact of policy uncertainty on firms’ non-GAAP reporting practices. We show that EPU increases both the likelihood and quality of non-GAAP earnings disclosures. These effects are more pronounced for firms with higher index ownership and for those with less informative GAAP earnings. Furthermore, we show that non-GAAP disclosures provide tangible economic benefit during periods of increasing EPU, including compensating for the reduced informativeness of GAAP earnings and reducing information asymmetry. Overall, our evidence suggests that non-GAAP reporting is a means by which managers communicate value-relevant information about their firms’ performance to investors during periods of high EPU.

Suggested Citation

  • Xia Chen & Xuejun Jiang & Louise Yi Lu & Yangxin Yu, 2024. "Economic Policy Uncertainty and Firms’ Non-GAAP Reporting," European Accounting Review, Taylor & Francis Journals, vol. 33(5), pages 1723-1746, October.
    • Handle: RePEc:taf:euract:v:33:y:2024:i:5:p:1723-1746
    DOI: 10.1080/09638180.2024.2368721
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