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Non-GAAP Disclosures and CEO Pay Levels

Author

Listed:
  • David H. Lont

    (Department of Accountancy and Finance, University of Otago, P. O. Box 56, Dunedin 9054, New Zealand)

  • Dinithi Ranasinghe

    (Department of Accountancy and Finance, University of Otago, P. O. Box 56, Dunedin 9054, New Zealand)

  • Helen Roberts

    (Department of Accountancy and Finance, University of Otago, P. O. Box 56, Dunedin 9054, New Zealand)

Abstract

We examine the association between CEO cash and equity compensation and non-GAAP disclosure practices in a responsive regulatory and opaque compensation reporting environment. Our empirical evidence, based on a sample of public companies in New Zealand, shows that CEO cash compensation is associated with the likelihood and frequency of non-GAAP disclosures, whereas equity incentives are not. Our results document evidence of an increase in the frequency of non-GAAP disclosures and a decrease in the provision and quality of reconciliation between non-GAAP measures and closely related GAAP measures around CEO cash compensation. In particular, managers use these disclosures when their GAAP earnings benchmarks are missed. A marginal decrease in opportunistic non-GAAP disclosures following the adoption of the International Financial Reporting Standards (IFRS) indicates little change in reporting behavior following adoption of IFRS. Our findings suggest that managers disclose non-GAAP measures with opportunistic intentions motivated by compensation and points to the need for regulators to set policy about clear reconciliation standards.

Suggested Citation

  • David H. Lont & Dinithi Ranasinghe & Helen Roberts, 2020. "Non-GAAP Disclosures and CEO Pay Levels," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 55(04), pages 1-48, December.
    • Handle: RePEc:wsi:tijaxx:v:55:y:2020:i:04:n:s109440602050016x
    DOI: 10.1142/S109440602050016X
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