We develop a rating system to evaluate the quality of individual non-GAAP exclusions. Our perspective is that high-quality exclusions reflect nonrecurring economic transactions, are transitory accounting adjustments, or have little usefulness in forecasting cash flows. We use four approaches to rate exclusions. We evaluate the serial correlation of the exclusion, survey accounting academics’ views, obtain practitioner ratings from the CFA Institute, and identify the exclusions approved by the Chinese securities regulator. A firm’s exclusion quality score is the weighted average rating of its individual exclusions. For our sample of S&P 500 firms, we document that exclusion quality varies by industry, captures trends in non-GAAP reporting, and is reasonably stable at the firm level. To validate the rating, we show that firms with lower exclusion quality scores receive more SEC comment letters, incur more Regulation G violations, exhibit greater analyst forecast dispersion, and have slower price discovery following earnings announcements.

This paper examines how chief executive officers’ (CEOs’) prosocial tendency influences corporate policies and firm value. We use individuals’ involvement with charitable organizations as a proxy for prosocial tendency. We find that, compared to firms with non-prosocial CEOs, firms with prosocial CEOs have lower executive subordinate turnover, implement more employee-friendly policies, experience higher customer satisfaction, and engage in more socially responsible activities. We also find that firms with prosocial CEOs have higher value and lower risk, partly due to the corporate policies adopted by prosocial CEOs. These results are corroborated when we compare changes in corporate policies and firm value around different types of CEO turnovers: a prosocial CEO replacing a non-prosocial CEO versus other types. Our results thus suggest that prosocial CEOs are more likely to make corporate decisions that benefit others and increase firm value.

We propose a framework to assess the decision-usefulness of heterogeneous disclosure practices that managers use to convey information to market participants. We illustrate an application of our framework to non-GAAP earnings, management earnings guidance, and earnings conference calls. We first identify key quality attributes for each disclosure practice and then develop a list of quality metrics that we apply to a small pilot sample. We focus on metrics that are easily measured in real time and discuss the practical challenges of conducting assessments of disclosure quality at the firm-quarter-disclosure level. Our descriptive analysis provides preliminary insights into whether and how voluntary disclosure quality varies across firms and highlights the interconnectedness of these disclosure practices. We discuss future research opportunities to expand and fine-tune the application of the framework to develop a comprehensive disclosure quality assessment.

This paper examines the association between CEOs' prosocial tendency and their firms' likelihood of accounting manipulation. We measure CEOs' prosocial tendency based on their involvement with charitable organizations. We find that prosocial CEOs are less likely to engage in accounting manipulation, as proxied by material non‐reliance restatements and SEC or US Department of Justice enforcement actions. The effect is more pronounced when CEOs are involved with charities that directly aim to improve the welfare of others and when they face stronger incentives to misreport. These results continue to hold in analyses of changes in CEOs' prosocial tendency around turnover events. Taken together, our findings suggest that CEOs' prosocial tendency, a fundamental personal trait, plays a significant role in shaping the quality of accounting information.

Local-thinking bias, wherein agents overweight information that comes readily to mind, is a prominent finding in cognitive psychology. In this study, we investigate local-thinking bias in the context of sell-side analysts and measure each analyst’s “local” information as news stemming from their individual coverage portfolio. Tests examining multiple analysts forecasting on the same focal firm at the same time find that individual analysts overweight idiosyncratic local news and underweight news from economically linked firms that are not in their coverage portfolios. Market prices track the analyst bias from local news, leading to predictable and economically significant return reversal patterns in the future. A trading strategy that adjusts for analysts’ biases earns meaningful abnormal returns. We discuss the implications of these findings for three literatures: (1) cognitive psychology, (2) analyst behavior, and (3) behavioral asset pricing.