This paper aims to examine the association between non-GAAP earnings disclosures and firms’ regular dividend policies. It also considers whether this association varies with industry structure and policy uncertainty.
The authors analyze 54,482 firm-year observions of US-listed firms from 2004 to 2021. Regular dividend policy is measured using payout ratios, dividends scaled by sales and cash and a dividend-paying indicator. The authors also examine share repurchases, total shareholder payout, dividend policy changes, alternative non-GAAP measures and cross-sectional differences across financial, industry and policy settings. Supplementary analyzes include instrumental-variable estimation, a pre- and post-Sarbanes-Oxley Act/Regulation G comparison and system GMM.
Firms that disclose non-GAAP earnings pay lower regular dividends and are less likely to initiate or increase them. Non-GAAP disclosure is not significantly associated with total shareholder payout or the level of share repurchases, although repurchases account for a larger share of the payout mix. The negative association with regular dividends is stronger among less financially constrained firms, firms operating in less concentrated and less vertically integrated industries and during periods of elevated policy uncertainty.
The findings connect non-GAAP reporting with regular dividend policy and payout composition. They are consistent with disclosure and dividends having partly overlapping communication roles. However, the study does not directly observe how investors weigh non-GAAP information relative to dividend signals or identify a single mechanism behind the association.
Investors and boards should consider non-GAAP reporting together with both dividends and share repurchases. Lower regular dividends among non-GAAP reporters do not necessarily indicate lower total distributions to shareholders, because repurchases account for a larger share of their payout mix.
Lower dividend payouts associated with non-GAAP disclosures may affect how household investors receive income from equity holdings, particularly among those who rely on dividend streams for regular cash flow. If firms retain a greater portion of earnings, capital is more likely allocated to internal projects rather than distributed to shareholders, which may influence savings behavior and investment planning. A clearer relationship between disclosure practices and payout policies can help improve how users of financial information assess corporate decisions and may support better financial literacy among individual investors.
This study provides large-sample evidence linking non-GAAP earnings disclosure with regular dividend policy. It also distinguishes regular dividends from total shareholder payout and documents differences in payout composition between non-GAAP and other firms.
