ETD

• board composition
• board specific skills
• earnings management
• earnout likelihood
• gender diversity
• mergers and acquisitions

In this thesis I investigate the role of target’s earnings management (EM) on the likelihood of earnout
clause, using a sample of 1920 M&A deals concluded between 2010 and 2024 among globally listed acquirers and US listed targets. This research tests whether the use of earnout, as a proxy for the presence of information asymmetry, varies according to the intensity of target’s earnings management, analysing different scenarios such as target operating in high-uncertainty sector or in the same sector as the acquirer. Furthermore, this research examines whether the acquirer board characteristics are related to the usage of earnout, since each characteristic has different implications.
The empirical results confirm a positive and statistically significant relationship between EM and the
earnout usage, supporting the hypothesis that acquirers use earnout to mitigate the risk of overpayment
when accounting manipulation inflates income. However, this research finds no statistical support for
the other hypotheses that earnings management has a stronger effect in high-uncertainty sectors, or a
weaker effect in intra-industry deals. Although EM shows a significant positive relationship with the
likelihood of earnout overall, it does not change its effect based on these specific deal contexts. On the other hand, data supports the hypotheses regarding acquirer board composition, providing that both
board with a higher gender diversity percentage, and board with higher percentage of member with specific skills are positively related to the presence of earnout clause.
These findings contribute to the literature by confirming the primary role of earnout as a way to mitigate risk arising from inflated income by discretionary accruals (DA) and providing useful insights regarding the acquirer board composition and the usage of earnout.