Earnout deals: method of initial payment and acquirers’ gains

Barbopoulos, L. G., Paudyal, K. and Sudarsanam, S. (2018) Earnout deals: method of initial payment and acquirers’ gains. European Financial Management, 24(59), pp. 792-828. (doi: 10.1111/eufm.12135)

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.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Barbopoulos, Dr Leonidas
• Authors: Barbopoulos, L. G., Paudyal, K., and Sudarsanam, S.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: European Financial Management
• Publisher: Wiley
• ISSN: 1354-7798
• ISSN (Online): 1468-036X
• Published Online: 25 July 2017
• Copyright Holders: Copyright © 2017 John Wiley and Sons Ltd
• First Published: First published in European Financial Management 24(5):792-828
• Publisher Policy: Reproduced in accordance with the publisher copyright policy