Abstract Prior literature on the relationship between financial reporting and investment efficiency generally overlooks the connection between firms' financial and managerial reporting systems. As a result, it is difficult to determine whether increases in the quality of firms' internal information environments (IIQ) and/or the quality of their external information environments (EIQ) explain improvements in investment efficiency following financial reporting changes. Leveraging the transition window to the new lease standard (Accounting Standards Codification [ASC] 842), we use a difference‐in‐differences design and find that firms that materially change their internal controls due to ASC 842 (treatment firms) significantly improve their investment efficiency in the final year of the transition window. Multiple falsification tests rule out that contemporaneous improvements in treatment firms' EIQ explain our finding. Additional channel analyses suggest the increases in IIQ for treatment firms predominantly alleviate moral hazard risk between central and divisional managers within the firm, leading to a reduction in empire building. Our findings extend the literature on the relationship between financial reporting and investment efficiency. They also contribute to the literature on the consequences of ASC 842 by answering the FASB's call for research on how ASC 842 affects firms' asset utilizations.

ABSTRACT We provide the first evidence after Regulation G on firms’ non-GAAP EPS denominator choices and whether they are informative or opportunistic. From 2013 to 2019, 17 percent of annual non-GAAP EPS numbers use denominators different from that of GAAP diluted EPS, which makes denominator adjustments among the most prevalent individual types of non-GAAP adjustments. For firms reporting GAAP and non-GAAP profits or GAAP losses and non-GAAP profits, we provide evidence consistent with denominator adjustments increasing non-GAAP EPS informativeness. Our evidence also suggests that opportunism in denominator choices is concentrated in firms reporting GAAP losses and non-GAAP profits and failing to adjust the denominator. Such nonadjustment is inconsistent with SEC requirements to report non-GAAP EPS “on a diluted basis” because the EPS denominator for a GAAP loss excludes dilutive claims. Although the SEC largely overlooks such firms, they are more likely, on average, to report non-GAAP EPS that analysts consider inflated. JEL Classifications: M40; M41; M48.