Non‐GAAP Earnings Disclosure and Trade Credit

Abstract

This study examines the effect of non‐GAAP earnings disclosure on trade credit from the buyer's perspective. Building on information asymmetry theory, this study predicts that non‐GAAP disclosure reduces financing frictions by conveying core and risk‐relevant earnings information to outside capital providers, enabling buyers to substitute away from trade credit toward less costly traditional financing. Using 42 675 firm‐year observations for 5544 U.S.‐listed firms from 2003 to 2020, this study finds that firms disclosing non‐GAAP earnings use significantly less trade credit, with the effect representing approximately 35% of the sample mean. The finding is robust to alternative measures, persists over future periods, and holds after addressing endogeneity through Heckman two‐stage estimation, entropy balancing, propensity score matching, and firm fixed effects augmented with industry‐by‐year fixed effects. Cross‐sectional tests show that the effect is more pronounced when monetary policy uncertainty is high, when information asymmetry is severe, and among firms led by lower‐ability managers, supporting the information‐channel mechanism. Mechanism tests confirm that non‐GAAP disclosure is associated with lower discretionary accruals, lower cost of debt, and greater equity financing access. Moreover, the effect is stronger when non‐GAAP measures exclude nonrecurring items, indicating that disclosure quality, not merely its existence, drives the financing benefit. This study contributes to the non‐GAAP literature by documenting real financing consequences beyond capital market informativeness and to the trade credit literature by showing that buyer‐side disclosure shapes working‐capital financing structure. Drawing on information asymmetry theory, this study examines whether non‐GAAP earnings disclosures affect buyers’ reliance on supplier trade credit. Using 42 675 firm‐year observations for U.S.‐listed firms from 2003 to 2020, this study shows that disclosing non‐GAAP earnings is associated with significantly lower trade credit use, highlighting real financing consequences and material working‐capital benefits of enhanced earnings disclosure.