Year of Graduation
Earn-out as an Alternative Method of Payment in M&A Deals: the Likelihood and the Impact on the Performance of M&A Deals for Bidders in Emerging Capital Markets
This study presents the search for the determinants of earn-out choice and the analysis of the effectiveness in such M&A deals in emerging capital markets. The acquirer uses this method of payment to protect themselves from the risk of re-evaluation of the acquired assets in case of high level of information uncertainty. According to the results, the information gap arises in cross-border acquisitions, in M&A deals with the hi-tech target companies and in market with significant economic volatility. In addition, there is a positive market reaction to the earn-out deals, significantly exceeding the market reaction to the transaction with cash. With the increase of the transaction cost the efficiency of deals with the earn-out is reduced.