Financing acquisitions with earnouts

Thomas W. Bates, Jordan B. Neyland, Yolanda Yulong Wang

Research output: Contribution to journalArticleResearchpeer-review

12 Citations (Scopus)


We present evidence that earnout agreements in acquisition contracts provide a substantial source of financing for acquirers. Acquirers in transactions with earnouts are significantly more likely to be financially constrained, face tighter credit market conditions, and use less debt and equity to fund acquisitions. Financially constrained acquirers also book lower fair values for the contingent claim. Earnout use is more likely in transactions that involve liquid sellers, and earnout bids garner higher transaction valuation multiples. Overall, the evidence suggests that earnouts are an economically material and increasingly common source of acquisition financing for acquirers with limited access to external capital.

Original languageEnglish
Pages (from-to)374-395
Number of pages22
JournalJournal of Accounting and Economics
Issue number2-3
Publication statusPublished - 1 Nov 2018
Externally publishedYes


  • Contingent liabilities
  • Corporate finance
  • Earnouts
  • Financial constraints
  • Mergers and acquisitions

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