The impact of institutional and cultural factors on the use of non-GAAP financial measures. International evidence from the oil and gas industry

While the main aim of Non-GAAP Financial Measures (NGFMs) is to increase the comparability of the performance, many studies highlight an opportunistic use aimed at distorting investors’ decisions. A recent stream of literature suggests that the conditions in which the company operates affect how NGFMs are used. Many studies focus on the impact of company-specific factors, while the role played by the institutional and cultural context remains scarcely investigated. This research analyses how institutional and cultural factors affect the propensity to disclose NGFMs, and both the materiality and the transparency of adjustments. The analysis is based on 1,731 quarterly press releases of 120 firms from the global Oil and Gas industry. The results show that the propensity to use NGFMs is reduced by a strong institutional system, while increased by the presence of a regulation on NGFMs’ disclosure and the adoption of International Financial Reporting Standards (IFRS). A strong legal system also reduces the materiality of the adjustments. Surprisingly, the presence of a regulation on NGFMs negatively affects the transparencyof the adjustments. Cultural factors, such as uncertainty avoidance and long-term orientation, reduce the propensity to disclose NGFMs and positively increase transparency. However, compared to institutional values, cultural factors play a less relevant role.