Does geographic dispersion increase the stock price crash risk after M%A with earnouts? Evidence from China

Jingyi Guan, Yunhui Wen and Eping Liu

International Journal of Banking, Accounting and Finance, 2024, vol. 14, issue 3, 299-323

Abstract: We investigate how geographic dispersion affects the stock price crash risk following mergers and acquisitions (M%A) transactions with earnouts using a sample of transactions from China's A-shares from 2010 to 2021. Empirical results show that geographic dispersion between the acquiring and target firms intensifies the stock price crash risk after earnouts. This occurs because geographic dispersion diminishes the levels of post-earnout performance achievements and R%D investment. Further discussion reveals that in cases of geographic dispersion, cross-industry M%As, and when target companies perform well and are of significant size, there is a greater propensity to sign earnout agreements, which leads to higher M%A premiums. Additionally, the negative impact of geographic dispersion on the stock price crash risk after earnouts is also affected by transaction characteristics. This study enriches the literature on M%A risks and provides valuable insights for mitigating risks in the capital markets.

Keywords: geographic dispersion; earnouts; mergers and acquisitions; M%A; stock price crash risk; influence mechanism; China. (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=142713 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:injbaf:v:14:y:2024:i:3:p:299-323

Access Statistics for this article

More articles in International Journal of Banking, Accounting and Finance from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().