| dc.description.abstract | In this thesis, we look into earnout provisions. We contribute to answering two questions:
when earnouts are employed and why they are not more common. By considering
asymmetric information in new ways, we augment the understanding of informational
asymmetry as an earnout determinant. Our thesis further innovates on existing research
by providing evidence on the costs of employing earnouts. The evidence we present is
consistent with asymmetric information regarding the target being a primary determinant
of earnout employment.
We find that acquirer M&A experience is negatively associated with earnouts, which
provides evidence that is consistent with reduced informational asymmetry being associated
with a lower probability of including earnout provisions in the consideration. Our thesis
contributes to establishing a relationship between investment bank involvement, both on a
deal- and firm-level, and the probability of earnout incidence. We find evidence consistent
with target investment bank involvement being associated with a lower probability of
including earnouts. We find no corresponding evidence on the association between the
acquirer’s investment bank engagement and earnout provisions. Our findings substantiate
previous research on informational asymmetry and provide evidence on the coherence
between investment bank involvement and the level of asymmetric information in a deal
regarding both target and acquirer. Furthermore, we collect data and provide evidence
on the background of public earnout transactions. Our findings suggest that these
transactions are associated with a substantially longer private duration and a higher
degree of informational asymmetry revolving around the target. | en_US |
