We examine the effects of adverse selection and agency costs on the structure of the consideration offered in an acquisition. Specifically we investigate factors affecting the benefits arising from use of earnouts. We find that when targets have greater private information, consideration is more...

We examine the effects of adverse selection and agency costs on the structure of the consideration offered in an acquisition. Specifically, we investigate factors affecting the benefits arising from use of earnouts. We find that when targets have greater private information, consideration is...

We examine the effects of moral hazard and adverse selection on the structure of the consideration offered in an acquisition. Specifically, we investigate factors affecting the occurrence of earnouts, finding that when targets have greater private information, consideration is more likely to be...