Earnouts in Mergers: Agreeing to Disagree and Agreeing to Stay

Posted: 9 Jul 2000

See all articles by Ninon Kohers

Ninon Kohers

University of South Florida - College of Business Administration

James S. Ang

Florida State University; Florida State University - College of Law

Abstract

We examine a large sample of mergers involving earnout payments made by bidders to target shareholders. Our findings suggest that earnouts serve two non-mutually-exclusive functions: as risk reduction mechanisms against misvaluation of high asymmetric information targets, and as retention bonuses for target human capital in mergers with feasible contract implementation. Around the merger announcement, bidder shareholders show significant positive responses, which are not reversed over the subsequent 3 years. In the postmerger period, the frequency of earnout payment and the percentage of target managers staying beyond the earnout period are high, supporting the use of earnouts as retention bonuses.

JEL Classification: G34

Suggested Citation

Kohers, Ninon and Ang, James S., Earnouts in Mergers: Agreeing to Disagree and Agreeing to Stay. Journal of Business, Vol. 73, No. 3, July 2000. Available at SSRN: https://ssrn.com/abstract=229189

Ninon Kohers (Contact Author)

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6337 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,595
PlumX Metrics