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

4. Research Results

The coefficients of interest in models (1) and (2) are (β ) and (λ ), respectively. The
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untabulated results indicate that (β ) and (λ ) are significantly positive at the 1% level.
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These findings reveal that EPU promotes voluntary non-GAAP earnings disclosures by
firms that recognize SPIs, thus supporting H1. An elevated EPU compels these firms to
improve exclusion quality by excluding more nonrecurring or transitory items, thereby
supporting H2.

We also observe that EPU positively relates to SPIs, thus reinforcing H1 again.
Further evidence indicates that voluntary non-GAAP earnings disclosures during elevated
EPU reduce the information asymmetry. Additionally, EPU incrementally renders SPIs
more nonrecurring and likely to be excluded.

5. Originality and Contribution

This study enhances prior literature in several ways as follows. First, although

previous studies suggest that EPU prompts disclosures solely as an information effect (e.g.,
Nagar et al., 2019; Jiang et al., 2022), we ascertain that this prompting role may originate
from real business activities and the recognition of SPI instigated by EPU. Second, EPU
is not only associated with the quality of GAAP earnings (El Ghoul et al., 2021), but also

with the quality of non-GAAP earnings. Third, our findings indicate a precise approach for
improving the quality of financial information in response to EPU: enhancing exclusion
quality by accurately excluding more nonrecurring items. As mentioned above, the
voluntary disclosure of non-GAAP earnings is an essential channel for firms to engage

with market participants. Our findings are likely to have significant implications for this
practice.

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