Work

Earnout deals: Method of initial payment and acquirers’ gains

Year: 2017

Type: article

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.

Source: European Financial Management

DOI: 10.1111/eufm.12135

Authors: Leonidas G. Barbopoulos, Krishna Paudyal, Sudi Sudarsanam

Institutions: University of Glasgow, University of Strathclyde, Cranfield University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2606006153

FWCI: 5.31

Cites: 24

Cited by: 26

Related to: 10