Non-GAAP Reporting and Cost of Debt: Evidence from Regulation G

• In Event: Non-traditional Disclosures

Abstract

We examine whether firms adopting high-quality non-GAAP reporting after the introduction of Regulation G in 2003 are rewarded by a reduction in cost of debt. Specifically, we exploit the regulatory change to run a difference-in-difference approach that allows us to separate the effect on firms affected by the regulation from those that were not. We use bond rating and spread as proxies for cost of debt and find that both improve for firms that adopt high-quality non-GAAP reporting as a consequence of the regulatory change. Further, this effect is more pronounced for firms that operate in a poorer information environment. This finding can be seen as first evidence that the regulation reduced information asymmetries important to creditors.

Authors

• Felix Thielemann, St. Gallen University

• Tami Dinh, University of St Gallen

• Helen Kang, UNSW Australia