Barbopoulos, L.G. and Adra, S. orcid.org/0000-0002-0187-2607 (2016) The earnout structure matters : takeover premia and acquirer gains in earnout financed M&As. International Review of Financial Analysis, 45. pp. 283-294. ISSN 1057-5219
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.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2016 Published by Elsevier Inc. This is an author produced version of a paper subsequently published in International Review of Financial Analysis. Uploaded in accordance with the publisher's self-archiving policy. Article available under the terms of the CC-BY-NC-ND licence (https://creativecommons.org/licenses/by-nc-nd/4.0/). |
Keywords: | Earnout financing; Information asymmetry; Takeover premia; Abnormal returns; Propensity Score Matching; Rosenbaum-bounds |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 13 Sep 2021 10:43 |
Last Modified: | 13 Sep 2021 10:43 |
Status: | Published |
Publisher: | Elsevier BV |
Refereed: | Yes |
Identification Number: | 10.1016/j.irfa.2016.04.007 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:178115 |
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Filename: Barbopoulos and Adra, 2016. The earnout structure matters.pdf
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