17. Do earnouts create the right incentives? Earnings management around earnout-based acquisitions

17. Do earnouts create the right incentives? Earnings management around earnout-based acquisitions

Coelho, A. P., & Loureiro, G. (2025). Do earnouts create the right incentives? Earnings management around earnout-based acquisitions. Journal of Financial Research. https://doi.org/10.1111/jfir.70007


This article examines whether acquiring firms engage in earnings management during earnout periods in mergers and acquisitions. Using a sample of 517 U.S. acquisitions with earnout clauses between 1998 and 2017, compared with nearly 4,000 transactions without earnouts, the study finds systematic evidence of downward earnings manipulation. Acquirers reduce reported performance during the earnout period to lower contingent payments to target shareholders, decreasing payouts by an estimated US$3.5 to US$5.25 million. The manipulation occurs mainly through real activities, such as increasing discretionary expenses in R&D or sales, since these actions are harder to detect than accrual-based adjustments. However, in short earnout periods, managers rely more on accruals due to their immediate impact. Incentives for downward manipulation are stronger in cash-financed deals, while stock-based payments mitigate such behavior because target shareholders become owners and monitor performance. The retention of target managers limits real manipulation but not accrual adjustments. Overall, earnouts create agency problems requiring stronger monitoring mechanisms.

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Avsnitt(108)

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Hutton, M., & Heath, T. (2025). A Discomforting Pedagogy of Poverty: Discourses, Representations and Vulnerabilities. Sociology. https://doi.org/10.1177/00380385251380772This article proposes a “pedag...

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19. Exploring the longitudinal impact of entrepreneurial education on entrepreneurial competences and intentions: evidence of an asymmetric polarization effect

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Almeida, D. C., Afonso, P., Ferreira, L. P., & Soares, A. M. (2026). Exploring the longitudinal impact of entrepreneurial education on entrepreneurial competences and intentions: evidence of an asymme...

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18. Framework for cross-border governance: from cross-border critical factors to sustainable development

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Krüger, C., Pennabel, A. F., Paschoalotto, M. A. C., Guimarães, F. H. C. B., Medeiros Kruger, N. R., Meneguzzo, M., Passador, C. S., & Ferreira Caldana, A. C. (2024). Framework for cross-border govern...

6 Mars 11min

16. 30th birthday celebrations: Views from the top about future management research and practice

16. 30th birthday celebrations: Views from the top about future management research and practice

Ratten, V., Newman, A., Palacios-Marqués, D., Mckeown, T., Casais, B., Prentice, C., Nuñez-Sánchez, J. M., Liñán, F., Stanton, P., Le, H., Aseri, M. A., & Walton, S. (2026). 30th birthday celebrations...

24 Feb 11min

15. Between promise and practice: a scoping review of the democratic outcomes of youth participation in local governance

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Ramos, F., Tavares, A. F., & da Cruz, N. F. (2026). Between promise and practice: a scoping review of the democratic outcomes of youth participation in local governance. Children and Youth Services Re...

20 Feb 12min

14. Science and productivity in European firms: how do regional innovation modes matter?

14. Science and productivity in European firms: how do regional innovation modes matter?

Barbosa, N., & Faria, A. P. (2026). Science and productivity in European firms: how do regional innovation modes matter? European Planning Studies, 34(1), 84–106. https://doi.org/10.1080/09654313.2025...

17 Feb 5min

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Pinho, J. C., Fontes, A., & Santos, G. G. (2026). Balancing the double-edged sword of artificial Intelligence: Job demands, resources, and Work–Life balance. Computers in Human Behavior Reports, 21, 1...

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