Why do firms use earnouts?

Abstract

This thesis analyses cash flow consequences of earnouts for a sample of 33 Nordic acquisitions. The aim is to find out whether firms use earnouts rationally. From the perspective of fundamental value, margins and the top line of a firm’s financials, the thesis examines whether the inclusion of an earnout have an impact on the cash flow consequence of an acquisition. The results report no significant difference, neither gross nor adjusted for with the results of control firms.