Using a mixed‐methods approach, I investigate how the terms that firms use to label non‐GAAP earnings interact with investors' scrutiny of non‐GAAP reporting to affect investors' information search behavior and investment decisions. This study informs regulators, who have expressed concern over the mislabeling of non‐GAAP measures, and managers, who are often criticized for their misuse of discretion in non‐GAAP reporting. I first provide descriptive evidence on the non‐GAAP labels used in practice, followed by a survey to understand what investors believe these labels convey about earnings quality. Finally, drawing on theory from psychology, I predict and then find in an experiment that investors who are more likely to scrutinize non‐GAAP reporting are not affected by non‐GAAP labels when deciding to seek out the non‐GAAP reconciliation, and react positively to appropriately used labels. However, investors who are less likely to scrutinize non‐GAAP reporting rely on the cue provided by the label when deciding whether to seek out the non‐GAAP reconciliation, and are more likely to be misled by inappropriately used labels. For regulators, these findings validate concerns related to the mislabeling of non‐GAAP measures and suggest increased non‐GAAP scrutiny helps counteract mislabeling. For managers, these findings suggest investors react favorably to the appropriate use of discretion in non‐GAAP reporting.

Operating cash flows are a critical input to valuation activities. Research and practice indicate that the most common method of presenting operating cash flows, the indirect method, is viewed as overly complex. We experimentally examine whether two theoretically motivated factors represent shortcomings of the indirect method: (1) inadequate linking of related components of net income and changes in working capital accounts, and (2) inconsistent income statement labeling between components of net income and their corresponding working capital changes. Drawing on causal reasoning theory, we predict and find that these factors hinder the decision usefulness of the operating section of the statement of cash flows. The results of our study are informative to the academic literature and standard setters, as we examine underlying reasons why the indirect method may be viewed unfavorably.

Financial reporting standard-setting bodies are expected to include academic research in their decision-making processes. However, little is known about whether, why, and how they engage with research. We interview staff from two major accounting standard-setting bodies and, using the information seeking and communication model as a theoretical lens, identify factors shaping their research engagement. These factors include perceptions of academic research, search difficulties, and challenges with assessing the credibility and utility of academic research. Our findings reveal an unstructured, idiosyncratic approach to information seeking, a reliance on academic papers over direct researcher interaction, a significant lack of two-way communication, and concerns relating to incentive differences between academics and standard setters. These structural issues limit the extent to which academic research can inform standard setting. We provide insights on improving the inclusion of academic research in the standard-setting decision-making process and contribute to broader discussions on research relevance.

We conduct an experiment in the securities-based crowdfunding setting to investigate whether some investors avoid accounting information for psychological reasons, even when they understand the information is useful in their decision-making. Results suggest investors who experience relatively more psychological discomfort when working with quantitative information are relatively less likely to acquire the financial statements of a potential crowdfunding investment. Importantly, this effect is incremental to any effect of investors' quantitative ability (i.e., their numeracy) and attenuates with an intervention designed to help investors overcome their psychological discomfort. Altogether, the results extend our understanding of the theory of information avoidance, provide a behavioral explanation for investors' documented underuse of accounting information, and can inform regulators as they revise crowdfunding regulations.