Insider stock pledge and voluntary Non-GAAP disclosures : evidence from US firms

Abstract

We investigate whether firms change their voluntary non-GAAP disclosure practices following insider stock pledge. We find that managers’ propensity to disclose non-GAAP number increase and the quality of non-GAAP reporting improves for pledging firms, suggesting managers voluntarily document high-quality information to stakeholders to alleviate concerns arising from pledging. Our results are robust to propensity score matching, entropy-balancing and staggered difference-in-difference identification. Cross-sectional analyses indicate that these changes in non-GAAP reporting are concentrated among firm a with high risk-taking and more conservative accounting. Collectively, our evidence is consistent with managers increased risk-aversion following insider stock pledge, providing new implications on the pledging behavior in response to ongoing criticism of pledging in the U.S. Overall, our evidence provides new insights on the determinants of non-GAAP reporting practices. Through investigating the information quality of non-GAAP disclosures, this study has further shed light on the behavioral motivations underlying insider stock pledging among U.S. companies, offering a reasonable explanation for the rationality and effectiveness of such stock pledge activities.