Proximity to broad bond rating change and non-GAAP earnings disclosure

Purpose This study aims to examine the relation between firms nearing a broad bond rating change (a rating that includes a plus or minus specification) and their use of non-GAAP earnings reporting. Design/methodology/approach This study uses regression analysis to examine this relation. Findings Analyzing a large panel sample from 2002 to 2020, the authors find that firms approaching a broad bond rating change are more likely to report non-GAAP earnings relative to firms not in this position. Further analysis reveals that firms with a plus specification in their bond ratings are less inclined to report non-GAAP earnings. In contrast, firms with a minus specification are significantly more likely to disclose non-GAAP earnings. Hence, the primary findings are primarily driven by firms with a minus specification. Originality/value This study connects two separate streams of literature: bond credit ratings from finance and non-GAAP earnings from accounting.