CEO Social Capital and Non-GAAP Earnings Disclosure

Utilizing a hand-collected sample of non-GAAP earnings disclosures from 2003-2016, we investigate the relationship between social capital/network connections of Chief Executive Officer (CEOs) and both their propensity to disclose non-GAAP earnings metrics as well as the quality of the disclosures. Firms led by CEOs with higher social capital are more likely to disclose non-GAAP earnings and do so to meet or beat consensus earnings estimates. There is no evidence to suggest that non-GAAP earnings disclosures reported by firms led by CEOs with higher social capital are obfuscatory; rather such non-GAAP disclosures are intended to decrease information asymmetries between the firm and market participants, in particular, non-GAAP exclusions are shown to be informative with regard to future operating earnings. Additional analyses suggest that the reputation effect motivates the usage of non-GAAP earnings disclosures whereas the information effect positively contributes to the quality of non-GAAP earnings disclosures