search query: @indexterm uncertainty / total: 958
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| Author: | Cain, M. D. Denis, D. J. Denis, D. K. |
| Title: | Earnouts: A study of financial contracting in acquisition agreements |
| Journal: | Journal of Accounting & Economics
2011 : FEB, VOL. 51: 1-2, p. 151-170 |
| Index terms: | contracts financial markets moral hazard valuation uncertainty mergers |
| Freeterms: | earnouts contingent payments SFAS potential size heterogeneity |
| Language: | eng |
| Abstract: | The paper empirically examines and analyzes earnout contracts, which provide for contingent payments in acquisition agreements. These results indicated considerable heterogeneity in the potential size of the earnout, the performance measure on which the contingent payment is based, the period over which performance is measured, the form of payment for the earnout, and the overall sensitivity of earnout payment to target performance. Their tests of the determinants of contract terms yield support for the view that earnouts are structured to minimize the costs of valuation uncertainty and moral hazard in acquisition negotiations. |
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