Contingent Earnouts in Acquisitions of Privately Held Targets

Roberto Ragozzino · Jeffrey J. Reuer

81 citations0/0 files storedJournal of Management

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Finance and Governance International Business and FDI Private Equity and Venture Capital

Abstract

Prior research has devoted significant attention to ownership choices when firms make market-entry decisions (e.g., equity alliance versus acquisition). This article emphasizes the importance of studying firms' contractual choices as well as the potential relationships between their contractual and ownership choices. This study of acquisitions examines the incidence and determinants of contingent earnouts, which are contracts that specify deferred variable payments to the target. The evidence indicates that the usage of such contracts increases with information asymmetries surrounding mergers and acquisitions, in particular when privately held targets are young or possess knowledge bases that are dissimilar from those of the acquirers. The article also presents evidence that firms' contractual choices (i.e., earnouts) and ownership choices (i.e., equity alliances) can substitute for one another.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 81 citations exist upstream.

References

1970The Market for "Lemons": Quality Uncertainty and the Market Mechanism 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1987The Economic Institutions of Capitalism 1983Limited-dependent and qualitative variables in econometrics 1986The Economic Institutions of Capitalism 1979Transaction-Cost Economics: The Governance of Contractual Relations 1991Comparative Economic Organization: The Analysis of Discrete Structural Alternatives 1971Industrial Market Structure and Economic Performance.

Cited by

2016Opening M&A Strategy to Investors: Predictors and Outcomes of Transparency during Organisational Transition 2013Top Management Turnover Following Mergers and Acquisitions: Solid Research to Date but Still Much to Be Learned 2012Earnouts in mergers and acquisitions: A game-theoretic option pricing approach 2013Performance of acquirers of divested assets: Evidence from the U.S . software industry 2019The impact of monetary policy on M&A outcomes

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.