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Earnouts in Acquisitions: The Impact of CEO Regulatory Focus
Viswa Prasad Gada, Lakshmi Goyal,
Published in Academy of Management
2018
Volume: 2018
   
Issue: 1
Abstract

This empirical study investigates the impact of the CEO’s regulatory focus on the firm’s propensity to use earnouts in the consideration structure of mergers and acquisitions. While prior studies have acknowledged and examined the role of CEO cognition on various corporate strategic actions, the impact of CEO’s regulatory focus on their risk perception and hence the usage of risk mitigating instruments in M&A deals remains under-explored. Using a dataset of 369 deals in the context of United Kingdom, this study finds a positive relationship between CEO’s prevention focus intensity and usage of earnouts. Furthermore, as per the phenomenon of regulatory fit and misfit, we examine the moderating impact of situational characteristics of the acquirer's prior acquisition experience and the nature of the economic activity of the target firm on the relationship between CEO's prevention focus intensity and the propensity to use earnouts. Building on the micro-foundations of strategy, these findings contribute to the literature of corporate strategy and strategic leadership, in particular, the role of CEO in the deal structuring of mergers and acquisitions.

About the journal
JournalAcademy of Management Proceedings
PublisherAcademy of Management
ISSN0065-0668
Open AccessNo