The earnout structure matters: Takeover premia and acquirer gains in earnout financed M&As |
| |
| Institution: | 1. University of St. Andrews, School of Economics & Finance, Castlecliffe, The Scores, St. Andrews, Fife KY169AR, United Kingdom;2. Notre Dame University Lebanon, Faculty of Business Administration and Economics, Zouk Mosbeh P.O. 72, Lebanon;1. Department of Finance, Iowa State University, 3342 Gerdin Business Building, Ames, IA 50011, United States;2. School of Business and Center for Institutional Investment Management, State University of New York at Albany, 365 Massry Center for business, Albany, NY 12222, United States;3. School of Business Administration, Portland State University, PO Box 751, Portland, OR 97207, United States;1. University of Porto, Portugal;2. CEF.UP and University of Porto, Portugal;1. University of Waikato, New Zealand;2. Loyola Marymount University, United States;3. University College Dublin, Ireland;1. Vlerick Business School, Reep 1, 9000 Gent, Belgium;2. Ghent University, Department of Accounting and Corporate Finance, Sint-Pietersplein 7, 9000 Gent, Belgium;3. Cass Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK;4. Erasmus University Rotterdam, Burgemeester Oudlaan 50, Rotterdam 3062 PA, the Netherlands;5. School of Management, Swansea University, Bay Campus, Fabian Way, Swansea, SA1 8EN, UK |
| |
| Abstract: | In this article, based on both parametric and non-parametric methods, we provide a robust solution to the long-standing issue on how earnouts in corporate takeovers are structured and how their structure influences the takeover premia and the abnormal returns earned by acquirers. First, we quantify the effect of the terms of earnout contract (relative size and length) on the takeover premia. Second, we demonstrate how adverse selection considerations lead the merging firms to set the initial payment in an earnout financed deal at a level that is lower than, or equal to, the full deal payment in a comparable non-earnout financed deal. Lastly, we show that while acquirers in non-earnout financed deals experience negative abnormal returns from an increase in the takeover premia, this effect is neutralised in earnout financed deals. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
