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Do earnouts deafen managers?
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Resumo(s)
This study investigates the role of contingent payments in mergers and acquisitions (earnouts), focusing on their impact on deal completion rates and managerial responses to announcement-period stock price reactions. Using a large sample of more than 19,000 U.S. M&A deals, we find that earnouts significantly increase the probability of deal completion, consistent with their function in mitigating information asymmetry and valuation uncertainty. Interestingly, we also find that managers learn less from announcement stock price reactions when earnouts are used. Deals that include earnouts are more likely to proceed despite adverse market reactions, and there is limited evidence of earnout renegotiation or removal. This pattern is more pronounced among the subsample of M&A deals with negative announcement returns, where managers appear more reluctant to abandon or revise underperforming deals. These results suggest that while earnouts are valuable contracting tools, they may make managers less responsive to market reactions. This study has important implications for boards, shareholders, and policymakers, emphasizing the need to monitor how M&A contingent contract structures affect managerial actions in response to market reactions.
Descrição
Palavras-chave
Earnouts M&A Market feedback Managerial learning
Contexto Educativo
Citação
Editora
SSRN
Licença CC
Sem licença CC