Economics at your fingertips  

The role of earnout financing on the valuation effects of global diversification

Leonidas G Barbopoulos (), Jo Danbolt () and Dimitris Alexakis
Additional contact information
Leonidas G Barbopoulos: University of Glasgow
Jo Danbolt: University of Edinburgh
Dimitris Alexakis: Independent Researcher

Journal of International Business Studies, 2018, vol. 49, issue 5, 523-551

Abstract: Abstract This article examines the impact of earnout financing on the value of acquiring firms engaged in cross-border acquisitions (CBAs), using a dataset of UK, US, Canadian and Australian firms from 1992 to 2012. The results show that firms initiating international business operations via earnout-financed CBAs enhance their value more than acquirers in (a) domestic acquisitions and (b) remaining CBAs by established multinational corporations (MNCs). Our findings demonstrate the superiority of earnout financing in CBAs announced by acquirers that have no prior international business experience. The results are robust to the firms’ endogenous choice to diversify globally and to the use of earnout financing. We contend that earnouts contribute to the reduction of valuation risk faced by firms acquiring a foreign target firm for the first time. Our empirical findings contribute to the existing debate on the merit of international expansion through CBAs and the role of earnout contingent payment.

Keywords: cross-border acquisitions (CBAs); first-time CBAs (FTCBAs); multinational corporations (MNCs) and enterprises (MNEs); contingent earnouts; event study (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (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:

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/41267/PS2

Access Statistics for this article

Journal of International Business Studies is currently edited by John Cantwell

More articles in Journal of International Business Studies from Palgrave Macmillan, Academy of International Business
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2019-06-04
Handle: RePEc:pal:jintbs:v:49:y:2018:i:5:d:10.1057_s41267-017-0142-4