From a theoretical perspective,the use of earnouts should mitigate valuation risk of the acquirer involved in mergers and acquisitions(M&A)transaction.Earnouts contracts should reduce information asymmetries and m...From a theoretical perspective,the use of earnouts should mitigate valuation risk of the acquirer involved in mergers and acquisitions(M&A)transaction.Earnouts contracts should reduce information asymmetries and moral hazard issues.By contrast,the definition of the terms of such contracts can be difficult and they provide several implementation issues to be faced.Based on these premises,this study aims to examine if the inclusion of earnouts is convenient and who benefits from their use.To this aim,I scrutinize academic literature examining the impact of earnouts.I perform a systematic review of studies in both accounting and financial domains that provide empirical evidence of main consequences due to the use of earnouts in M&A.Findings generally highlight a positive impact on the stock market performance of the acquirer in earnout-financed deals.Nevertheless,the positive reaction of acquirers’investors is influenced by specific features to be managed.Several issues are still uncovered and need further examination.展开更多
Earnout provisions(“earnouts”hereafter)provide for contingent payments in M&A agreements and play a role in reducing information asymmetry.However,in China,earnouts are not solely driven by negotiations between ...Earnout provisions(“earnouts”hereafter)provide for contingent payments in M&A agreements and play a role in reducing information asymmetry.However,in China,earnouts are not solely driven by negotiations between acquirers and targets but are also related to regulatory preference.The CSRC amended the M&A regulation in 2014,deregulating mandatory earnouts while retaining the approval system.Leveraging on this context,we explore whether regulators implement implicit regulation by encouraging the usage of voluntary earnouts,and the economic consequences of such action.Our results show that earnouts are more likely to be included in an M&A contract when the deal requires CSRC approval.M&As that involve earnouts are also more likely to obtain regulatory approval and in a shorter time.These findings suggest that regulators may still prefer earnouts even after deregulation.In addition,we find that the association between voluntary earnouts and acquirers’postacquisition performance is negative when the M&A deal requires regulatory approval,suggesting that voluntary earnouts influenced by regulatory preference can potentially have a negative impact.Further analyses indicate that this impact can be alleviated by comment letters and market monitoring.Our findings provide regulators with insights into the effects of the regulatory reform in the M&A market.展开更多
文摘From a theoretical perspective,the use of earnouts should mitigate valuation risk of the acquirer involved in mergers and acquisitions(M&A)transaction.Earnouts contracts should reduce information asymmetries and moral hazard issues.By contrast,the definition of the terms of such contracts can be difficult and they provide several implementation issues to be faced.Based on these premises,this study aims to examine if the inclusion of earnouts is convenient and who benefits from their use.To this aim,I scrutinize academic literature examining the impact of earnouts.I perform a systematic review of studies in both accounting and financial domains that provide empirical evidence of main consequences due to the use of earnouts in M&A.Findings generally highlight a positive impact on the stock market performance of the acquirer in earnout-financed deals.Nevertheless,the positive reaction of acquirers’investors is influenced by specific features to be managed.Several issues are still uncovered and need further examination.
基金Fund Project of Shanghai University of Finance and Economics(Grant CXJJ2022-307)National Natural Science Foundation of China(Grant 72372097)+2 种基金the Humanities and Social Sciences Fund of the Ministry of Education(MOE)(Grant 20YJA790083)the Shuguang Program of the Shanghai Education Development Foundation,the Program for Innovative Research Team of SUFE,the MOE Project of the Key Research Institute of Humanities and Social Science in University(Grant 22JJD790093)professional English language editing support provided by AsiaEdit(asiaedit.com).All errors are our own.
文摘Earnout provisions(“earnouts”hereafter)provide for contingent payments in M&A agreements and play a role in reducing information asymmetry.However,in China,earnouts are not solely driven by negotiations between acquirers and targets but are also related to regulatory preference.The CSRC amended the M&A regulation in 2014,deregulating mandatory earnouts while retaining the approval system.Leveraging on this context,we explore whether regulators implement implicit regulation by encouraging the usage of voluntary earnouts,and the economic consequences of such action.Our results show that earnouts are more likely to be included in an M&A contract when the deal requires CSRC approval.M&As that involve earnouts are also more likely to obtain regulatory approval and in a shorter time.These findings suggest that regulators may still prefer earnouts even after deregulation.In addition,we find that the association between voluntary earnouts and acquirers’postacquisition performance is negative when the M&A deal requires regulatory approval,suggesting that voluntary earnouts influenced by regulatory preference can potentially have a negative impact.Further analyses indicate that this impact can be alleviated by comment letters and market monitoring.Our findings provide regulators with insights into the effects of the regulatory reform in the M&A market.
