Regulatory intensity and non-GAAP earnings disclosure

Abstract

This study investigates whether the firm-specific burden of regulatory compliance influences managers’ choices regarding non-GAAP reporting. By utilizing the novel and rigorous measure of regulatory intensity, the results show that increased regulatory intensity enhances both the likelihood and quality of non-GAAP disclosures, consistent with non-GAAP metrics being employed transparently. The findings are validated through various robustness checks, such as alternative measures of regulatory intensity, DiD estimation, path analysis and the exclusions of possible channel. Furthermore, this association is more pronounced when firms experience heightened cost of goods sold (COGS) pressures, are financially constrained, and have weaker external monitoring. These cross-sectional analyses show that regulatory intensity functions as a behavioral deterrent that limits managerial opportunism in non-GAAP disclosures. Collectively, the findings contribute to the literature by demonstrating that regulatory intensity can paradoxically improve corporate transparency through strategic disclosure choices, providing new insights into managerial responses to evolving regulatory environments in U.S. financial markets.