• Firms that frequently disclose non-GAAP earnings tend to attract more informed bidders and achieve better post-deal results.

• High-quality non-GAAP reports—those consistent with analyst adjustments—drive measurable gains in bidder returns.

• Transparent voluntary reporting can reduce information asymmetry, leading to smarter capital allocation.

A new study suggests that non-GAAP earnings – financial results adjusted from standard accounting rules – play a role in successful and efficient mergers and acquisitions (M&As).

The paper, titled “Right on Target: Is Public Disclosure of Non-GAAP Earnings Associated with M&A Efficiency?”, was published in Contemporary Accounting Research. Coauthored by Gies College of Business professor Ciao-Wei Chen, Frank Heflin (University of Georgia), Patrick W. Ryu (University of Manchester), and Jasmine Wang (University of Virginia), the study offers some of the early empirical evidence that voluntary earnings disclosures can improve real-world investment outcomes in M&A deals.

Non-GAAP metrics are performance measures that companies report outside generally accepted accounting principles (GAAP). Managers often adjust official earnings to exclude one-time or non-recurring items – such as restructuring costs, stock-based compensation, or amortization – to highlight what they consider the firm’s core profitability.

“Non-GAAP metrics are widely used by about 90% of S&P firms; however, regulators like the SEC have long worried that these figures can be misleading,” said Chen, an associate professor of accountancy at Gies Business and PwC Faculty Fellow. “Our study suggests that non-GAAP reporting can also have benefits in certain contexts, such as mergers and acquisitions.”

Inside the Study: 669 Deals, $1.14 Trillion in Value

The researchers examined 669 public-company acquisitions between 2005 and 2016, representing roughly $1.14 trillion in total deal value. They focused on how frequently target firms disclosed non-GAAP earnings in the two years before a deal and related that to various measures of deal success.

They found that targets that disclosed non-GAAP earnings more often were linked to higher bidder announcement returns. This means acquirers’ stock prices reacted more positively when such targets were acquired. A one-standard-deviation increase in disclosure frequency corresponded to a 0.68–1.02 percentage-point rise in bidder announcement returns – an economically meaningful effect

These disclosures also correlated with greater deal synergies, fewer post-acquisition goodwill impairments, and in some cases, stronger post-deal operating performance. Chen and his coauthors argue that public non-GAAP disclosures help bidders make better investment decisions in at least three ways:

First, this information reduces uncertainty early in the process. In the early stages of deal evaluation – before confidentiality agreements or access to private data – bidders must rely on public information. Non-GAAP figures provide additional clarity about a target’s core earnings and potential synergies.

Secondly, sharing these metrics up front can improve data quality. Because public non-GAAP numbers are subject to investor and analyst scrutiny, they may be more reliable than private figures shared later in negotiations.

Finally, public disclosures can act as reference points – or important benchmarks – to assess the credibility of any non-GAAP metrics privately presented during due diligence

“When dealmakers can see a clearer picture of a company’s true, recurring earnings—rather than numbers clouded by one-off charges or accounting noise—they can make smarter bids,” said Chen. “Our findings show that transparent, high-quality non-GAAP disclosures don’t just help investors; they help companies on both sides of a merger make better decisions.”

Quality matters

Not all non-GAAP reporting is created equal. The study found that only higher-quality disclosures – those more consistent with analysts’ adjustments or with fewer SEC comment-letter issues – were tied to improved deal outcomes. In contrast, “low-quality” non-GAAP numbers (for instance, those with aggressive or inconsistent exclusions) did not show similar benefits

Moreover, the link between non-GAAP reporting and M&A efficiency was stronger when targets were harder to value (for example, volatile or information-poor firms) and when their broader information environment was weaker, such as situations where buyers have the most to gain from clearer disclosures.

“Our findings suggest that non-GAAP disclosures, when used responsibly, can improve decision-making,” said Chen. “This voluntary reporting helps direct capital toward more productive mergers by reducing information asymmetry between buyers and sellers.”

Chen noted one key obstacle he and his team faced in this project, which also reflects a broader challenge in non-GAAP reporting. While it would have been valuable to pinpoint which non-GAAP adjustments are potentially useful, it is difficult to systematically categorize these adjustments because companies have discretion over what to exclude, and there’s no uniformity. As a result, users often find it challenging to compare non-GAAP disclosures across firms.

For regulators, this study offers a nuanced picture: while there’s reason to monitor and enforce consistency in non-GAAP reporting, there’s also evidence that these metrics can support better resource allocation rather than simply confusing investors.

The study concludes that public non-GAAP earnings disclosures make M&A deals more efficient and less prone to costly mispricing. Targets that share transparent, high-quality adjusted earnings data tend to attract better-informed bidders, produce more valuable combinations, and suffer fewer post-deal write-downs. It is a finding that may prompt both dealmakers and regulators to take a fresh look at the role of these once-controversial metrics.

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The paper, "Right on target: Is public disclosure of non-GAAP earnings associated with M&A efficiency?" is available online: 

DOI: 10.1111/1911-3846.13064