Non-GAAP Reporting and Debt Market Outcomes: Evidence from Regulation G

Felix Thielemann (), Tami Dinh () and Helen Kang ()
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Felix Thielemann: University of St.Gallen
Tami Dinh: University of St.Gallen
Helen Kang: UNSW Sydney

Schmalenbach Business Review, 2019, vol. 71, issue 2, No 3, 169-203

Abstract: Abstract We exploit the introduction of Regulation G (RegG) by the U.S. Securities and Exchange Commission (SEC) in 2003 to study the association between non-GAAP earnings disclosure and debt market outcomes. Specifically, we focus on a subset of 199 S&P 500 firms to analyse the association between non-GAAP earnings disclosure and long-term issuer credit ratings as well as bond spreads before and after the regulatory intervention. We find that post-RegG, correlation between non-GAAP earnings disclosure and bond spreads changes from positive to negative but do not document any change in its correlation with respect to credit ratings. Our study provides first evidence that post-RegG, bond investors, but not rating agencies, seem to view non-GAAP earnings disclosure favourably as part of their credit risk assessment. In practical terms, our results document a specific benefit of RegG and may inform the SEC that its goal of more accurate security pricing extends to the bond markets, which is an under-researched area in the context of non-GAAP regulation.

Keywords: Non-GAAP earnings; Credit ratings; Bond spreads; Regulation G (search for similar items in EconPapers)
JEL-codes: G12 G24 M41 M48 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s41464-019-00074-x

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