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EXPANDING THE DEFINITION OF BOUNDED RATIONALITY IN STRATEGY
RESEARCH: AN EXAMINATION OF EARNOUT FRAMES IN M&A
by
Libby Leann Weber
A Dissertation Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(BUSINESS ADMINISTRATION)
August 2010
Copyright 2010 Libby Leann Weber
Object Description
| Title | Expanding the definition of bounded rationality in strategy research: an examination of earnout frames in M&A |
| Author | Weber, Libby Leann |
| Author email | libbyweb@usc.edu; libbyweb@gmail.com |
| Degree | Doctor of Philosophy |
| Document type | Dissertation |
| Degree program | Business Administration |
| School | Marshall School of Business |
| Date defended/completed | 2010-05-24 |
| Date submitted | 2010 |
| Restricted until | Unrestricted |
| Date published | 2010-06-16 |
| Advisor (committee chair) | Mayer, Kyle J. |
| Advisor (committee member) |
Rajagopalan, Nandini Nickerson, Jackson Miller, Norman |
| Abstract | When an M&A contract contains an earnout clause, a performance-contingent consideration provision, the value of the deal can be framed as: 1) total potential consideration, the sum of the guaranteed upfront payment and the contingent payment, or 2) guaranteed consideration, the upfront payment with the possibility of earning additional payment. The way the parent firm frames the merger value influences how retained target managers perceive the earnout. They view the earnout as a potential loss if the deal value is framed in terms of total consideration and as a potential gain if the deal value is framed in terms of guaranteed consideration. Prospect theory suggests that the contrasting views lead to different behavioral risk profiles. Under a total consideration frame, retained target management displays risk-seeking behavior in an attempt to avert certain loss. Alternatively, if the merger value is framed in terms of guaranteed consideration, they display risk-averse behavior in an attempt to preserve the gain. Parent firms have specific goals for different mergers. Because risk-seeking behavior may be more appropriate to accomplish one merger goal, but not another, it is important to understand when to use total or guaranteed consideration frames to induce risk-seeking or risk-averse behavior, respectively. When deal frames are strategically aligned with parent merger goals, retained target management has a higher likelihood of displaying the behavior desired by the parent, leading to a greater probability that the parent’s merger goal will be met and retained target management will receive the earnout payment. |
| Keyword | framing; mergers; acquisitions; M&A; earnout clauses; merger contracts; bounded rationality |
| Geographic subject (country) | USA |
| Language | English |
| Part of collection | University of Southern California dissertations and theses |
| Publisher (of the original version) | University of Southern California |
| Place of publication (of the original version) | Los Angeles, California |
| Publisher (of the digital version) | University of Southern California. Libraries |
| Provenance | Electronically uploaded by the author |
| Type | texts |
| Legacy record ID | usctheses-m3137 |
| Contributing entity | University of Southern California |
| Rights | Weber, Libby Leann |
| Repository name | Libraries, University of Southern California |
| Repository address | Los Angeles, California |
| Repository email | cisadmin@lib.usc.edu |
| Filename | etd-Weber-3809 |
| Archival file | uscthesesreloadpub_Volume51/etd-Weber-3809.pdf |
Description
| Title | Page 1 |
| Contributing entity | University of Southern California |
| Repository email | cisadmin@lib.usc.edu |
| Full text | EXPANDING THE DEFINITION OF BOUNDED RATIONALITY IN STRATEGY RESEARCH: AN EXAMINATION OF EARNOUT FRAMES IN M&A by Libby Leann Weber A Dissertation Presented to the FACULTY OF THE USC GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (BUSINESS ADMINISTRATION) August 2010 Copyright 2010 Libby Leann Weber |
