Do Managers Issue More Voluntary Disclosure When GAAP Limits Their Reporting Discretion in Financial Statements?

Paul Hribar, Richard Mergenthaler*, Aaron Roeschley, Spencer Young, Chris X. Zhao

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We examine whether managers provide more voluntary disclosure when GAAP limits their reporting discretion in financial statements. We find managers are more likely to disclose non-GAAP earnings, issue more management forecasts, and provide longer yet more readable management discussion and analysis (MD&A) disclosures when GAAP limits their discretion. These effects are stronger when there is greater demand for information and better monitoring. In contrast, these effects are weaker when managers have incentives to manage earnings. Difference-in-differences analyses around standard changes provide further evidence that managers make more non-GAAP adjustments and are more likely to discuss the standard and its underlying transaction in the MD&A when a new standard limits their discretion more than its predecessor. Collectively, our results suggest managers use voluntary disclosure channels to convey information when GAAP limits their ability to recognize such information in financial statements.
Original languageEnglish
Pages (from-to)299-351
Number of pages53
JournalJournal of Accounting Research
Volume60
Issue number1
DOIs
Publication statusPublished - Mar 2022

Scopus Subject Areas

  • Economics and Econometrics
  • Accounting
  • Finance

User-Defined Keywords

  • managerial discretion
  • mandatory financial reporting
  • quality of accounting information
  • voluntary disclosure

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