Languages, M&A Risks and Earnouts: A Global Perspective
Abstract
Users of strong future time reference (FTR) languages(e.g., English) are grammatically required to distinguish between 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.References
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