Languages, M&A Risks and Earnouts: A Global Perspective
Abstract
future and present events, while users of weak FTR languages (e.g., Chinese) are not. This study hypothesizes that firms using
weak FTR languages as working languages are prone to believing that negative events(e.g., moral hazards) inM&A transactions
are more imminent and therefore have a higher degree of motivation to hedge against M&A risks. Consistent with the baseline
hypothesis, I find evidence that buyers with weak FTRlanguages as their working languages have a higher probability to use
earnouts in M&A transactions to hedge against investment risks. Next, I conduct robustness checks by altering samples. I also
find that the extent of trade globalization has a negative mediating effect on the FTR-earnout mechanism. This study provides a
new perspective to study the factors affecting the usage of earnouts in M&A transactions and enriches the literature in linguistics.
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DOI: https://doi.org/10.18282/l-e.v10i3.2407
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