The real effects of earnout contracts in M&As

Leonidas G Barbopoulos*, Jo Danbolt

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Earnouts address merger valuation risk by deferring payment of a large part of deal consideration and making it contingent on targets’ future performance. We find acquirers of unlisted targets using earnouts gain more (less) than those making full up-front payments in cash (stock). Larger and older acquirers benefit more from earnout-based deals, as do foreign acquirers and acquirers advised by top-tier or boutique advisors. We address identification through the PSM method and a quasi-natural experiment. Acquirers realize the highest returns from earnouts when the deferred payment is around 30% of deal value. Deferred payments are larger after the SFAS141(R) reform.
Original languageEnglish
Pages (from-to)607-639
Number of pages33
JournalJournal of Financial Research
Issue number3
Early online date23 Jul 2021
Publication statusPublished - 6 Sep 2021


  • mergers and acquisitions
  • earnouts
  • information asymmetry
  • financial advisors
  • risk-adjusted returns
  • SFAS141(R) reform


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