This study aims to examine whether firms’ carbon emissions are associated with their use of non-GAAP earnings disclosures.
Using a large sample of US public firms from 2002 to 2020 comprising 12,984 firm-year observations, the authors analyze the relation between firm-level carbon emissions and the likelihood of reporting non-GAAP earnings. The authors use logistic regression models with a comprehensive set of firm-level controls, as well as industry and year fixed effects.
The authors document a positive and statistically significant relation between carbon emissions and non-GAAP earnings disclosure, indicating that firms with higher emissions are more likely to report non-GAAP earnings. Cross-sectional analyses further show that the relation is concentrated among firms operating in non-environmentally sensitive industries and low-tech sectors, and is primarily driven by firms with higher emission intensity.
This study contributes to the literature on sustainability and financial reporting by identifying environmental performance as an important determinant of discretionary financial disclosure choices. The findings are consistent with a legitimacy-based disclosure framework in which firms adjust reporting practices in response to environmental scrutiny and highlight the role of non-GAAP earnings as part of a broader strategic communication process.
