Stakeholder proximity and non-GAAP earnings disclosure

Purpose This study examines the relation between stakeholder proximity and firms’ use of earnings measures not prepared in accordance with generally accepted accounting principles (GAAP), commonly referred to as non-GAAP earnings. Design/methodology/approach Stakeholder proximity is measured using both geographic proximity (urban location) and social proximity (social connectedness). Using a sample of US public firms from 2002 to 2020, we estimate regression models and conduct cross-sectional and robustness analyses to address endogeneity concerns. Findings We find that stakeholder proximity is significantly and positively associated with the likelihood of non-GAAP disclosure, with social proximity exhibiting a stronger effect. Cross-sectional analyses indicate that the relation is more pronounced when information demand and financial-reporting scrutiny are higher and also stronger when firms have greater reporting discretion or face greater performance pressure. Additional tests confirm that the results are robust to endogeneity concerns and are not driven by firms’ strategic orientation. We further show that market reactions to non-GAAP disclosures are stronger for firms with greater stakeholder proximity. Originality/value This study introduces stakeholder proximity, particularly social proximity, as an important determinant of non-GAAP disclosure and provides evidence that proximity influences both disclosure decisions and investor responses.