Fair Value of Earnouts: Valuation Uncertainty or Managerial Opportunism?

• 成果类型: Article
• 署名作者: Ferguson, Andrew; Hu, Cecilia Wei; Lam, Peter
• 署名单位: University of Technology Sydney; Deakin University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2021-0613
• 发表日期: 2024
• 页码: 141-167
• 关键词: Information asymmetry; firm performance; AGENCY COSTS; acquisitions; liabilities; earnings; MARKET; reliability; DISCLOSURES; management

摘要

This study investigates the economic consequences of the IFRS 3 (2008) requirement for fair valuing earnouts. Using a hand -collected sample of earnout fair value estimates in acquisitions completed by Australian firms, we find that a significant portion of acquirers overstate initial earnout liabilities and strategically reverse them as operating gains to boost post-M&A earnings. These overstatements are more pronounced when acquirers face investment- and performance -related pressure but attenuated in the presence of high -quality auditors and debt -financed deals. Acquirers also obfuscate earnout-related disclosures, inhibiting investors' assessment of earnout values. By doing so, managers extend their tenure. Further analysis reveals that IFRS 3 (2008) leads to a significant increase in both the frequency and magnitude of earnouts in public acquirers' transactions. Overall, we highlight the accounting benefit of earnouts for acquirers under IFRS 3 (2008), with implications for investors, analysts, auditors, and standard setters.