Non-GAAP reporting following debt covenant violations

• 成果类型: Article
• 署名作者: Christensen, Theodore E.; Pei, Hang; Pierce, Spencer R.; Tan, Liang
• 署名单位: University System of Georgia; University of Georgia; California State University System; California State University San Bernardino; State University System of Florida; Florida State University; Virginia Polytechnic Institute & State University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-019-09492-1
• 发表日期: 2019
• 页码: 629-664
• 关键词: pro forma earnings; corporate governance; propensity score; Control rights; managers use; disclosure; firm; determinants; performance; AGENCY

摘要

We investigate whether firms change their non-GAAP reporting practices after debt covenant violations. We find that the likelihood that a firm will disclose non-GAAP earnings decreases and (for those that continue to disclose) the quality of non-GAAP reporting improves following covenant violations, consistent with stronger shareholder monitoring during this period of scrutiny. Consistent with increased monitoring following a debt covenant violation, cross-sectional analyses indicate that these changes in non-GAAP reporting are concentrated among firms with strong governance. Moreover, we find that investor demand for disclosure (proxied by analyst-provided non-GAAP performance metrics and EDGAR search volume) increases following a covenant violation. Collectively, our evidence is consistent with heightened investor scrutiny following covenant violations, and it casts doubt on the competing explanation that shareholders delegate monitoring to creditors following a covenant violation. Overall, our evidence provides new insights on the determinants of firms' non-GAAP reporting practices and an alternative view about how debt covenant violations influence voluntary disclosure.