Abstract
We analyse the implications of initial payment methods in earnout deals on acquirers’ gains. The results, which are robust to self-selection bias and alternative model specifications, reveal that earnout deals outperform non-earnout deals. The acquirers gain the most from earnout deals when both initial and deferred payments are in stocks. The positive wealth effect of the choice of initial payment method in earnout deals is more prominent in cross-border deals than in domestic deals. Overall, the earnout deals generate higher gains when both the initial and deferred payments help spread the risk between the shareholders of acquiring and target firms.
| Original language | English |
|---|---|
| Pages (from-to) | 792-828 |
| Number of pages | 37 |
| Journal | European Financial Management |
| Volume | 24 |
| Issue number | 5 |
| Early online date | 25 Jul 2017 |
| DOIs | |
| Publication status | Published - 1 Nov 2018 |
Keywords / Materials (for Non-textual outputs)
- acquirers’ gains
- asymmetric information
- earnout contracts
- initial payment in earnout deals
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Dive into the research topics of 'Earnout deals: Method of initial payment and acquirers’ gains'. Together they form a unique fingerprint.Profiles
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Leonidas Barbopoulos
- Business School - Chair in Finance
- Accounting and Finance
- Corporate Finance
- Edinburgh Centre for Financial Innovations
Person: Academic: Research Active