Article2013

The Effects of Compensation and Board Quality on Non-GAAP Disclosures in Europe

67 citations0/0 files storedThe International Journal of Accounting

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

This study reports international evidence on the impact of compensation and board quality on the voluntary disclosure of non-GAAP earnings numbers. We find that compensation contracts of board directors that are linked to firm's market performance are associated with a higher probability of disclosure of non-GAAP figures in the earnings announcements' press release. Furthermore, when this type of compensation is used, firms tend to report non-GAAP figures in the title of the press release, make more adjustments for recurring items, and avoid reporting reconciliations. These reporting practices have been associated with opportunistic disclosure. We also show that an efficient governance structure of the board of directors can help restrain most of these discretionary disclosure decisions regarding non-GAAP reporting.

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References

1980Agency Problems and the Theory of the Firm 2003Corporate Governance and Equity Prices 1990Performance Pay and Top-Management Incentives 2002Audit committee, board of director characteristics, and earnings management 1997An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud 2008What Matters in Corporate Governance?2010The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey 2003Corporate governance, investor protection, and performance in emerging markets

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