Non-GAAP Reporting and Innovation Efficiency

Abstract

Routine non-GAAP reporting can motivate managers to invest in R&D, potentially enhancing future innovation outputs. However, this motivation may reduce innovation efficiency, as increased R&D activities complicate the monitoring of managerial performance. Our findings indicate that while non-GAAP reporting correlates positively with future innovation inputs and outputs, it negatively impacts innovation efficiency. Effective corporate governance mechanisms can mitigate this adverse relationship, and the negative effect of non-GAAP reporting is more significant for exploratory innovation than for exploitative innovation. Overall, non-GAAP reporting positively influences innovation outputs but necessitates strong governance to address its detrimental effects on efficiency.