Page 180 - 35-1

The Impact of Economic Policy Uncertainty on Non-GAAP Earnings’ Quality

The Impact of Economic Policy Uncertainty on Non-GAAP
Earnings’ Quality

Sheng-Yi Lo, Department of Finance, National Sun Yat-sen University
I-Lin Chen, Department of Accounting, Providence University
Han-Chung Chen, Department of Accountancy, National Taipei University
Yun-Zhu Liu, Deloitte & Touche Taiwan

1. Purpose and Objective

Economic policy uncertainty (EPU), induced by governmental policies, significantly
influences corporate business activities (e.g., Baker, Bloom, and Davis, 2016; Bonaime,
Gulen, and Ion, 2018; Duong, Nguyen, Nguyen, and Rhee, 2020). Recent studies indicate

that EPU is a crucial factor influencing corporate financial reporting and information
disclosures (e.g., Nagar, Schoenfeld, and Wellman, 2019; El Ghoul, Guedhami, Kim, and
Yoon, 2021; Jiang, Pittman, and Saffar, 2022).
Among the various methods of corporate financial reporting and information

disclosures, the voluntary disclosure of non-GAAP earnings is one of the most significant
channels. A report by the American Institute of Certified Public Accountants (AICPA) in
September 2020 indicates that 94% of S&P 500 companies voluntarily disclosed at least
one non-GAAP earnings figure in their first quarterly financial reports for 2020. Most

participants in capital markets, including investors, analysts, and stockbrokers, may be
exposed to or utilize substantial non-GAAP earnings information. Therefore, it is essential
to explore the effect of EPU on a firm’s decision to voluntarily disclose non-GAAP
earnings and the quality of such disclosures.

2. Literature and Hypotheses

In recent years, EPU has garnered increasing attention from academics, resulting in

numerous studies investigating its effects at the firm level. One stream of literature aims
to examine the effects of EPU on various business activities (El Ghoul et al., 2021). The
studies find that because of EPU’s potential to obscure the future business conditions

172