Carbon emissions and non-GAAP earnings disclosure

Purpose This study aims to examine whether firms’ carbon emissions are associated with their use of non-GAAP earnings disclosures. Design/methodology/approach 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. Findings 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. Originality/value 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.