Earnout financing in the financial services industry

Leonidas G. Barbopoulos, Phil Molyneux, John O.S. Wilson*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This paper explores the effects of earnout contracts used in US financial services M&A. We use propensity score matching (PSM) to address selection bias issues with regard to the endogeneity of the decision of financial institutions to use such contracts. We find that the use of earnout contracts leads to significantly higher acquirer abnormal returns (short- and long-run) compared to counterpart acquisitions (control deals) which do not use such contracts. The larger the size of the deferred (earnout) payment, as a fraction of the total transaction value, the higher the acquirers' gains in the short- and long-run. Both acquirer short- and long-run gains increase when the management team of the target institution is retained in the post-acquisition period.

Original languageEnglish
Pages (from-to)119-132
Number of pages14
JournalInternational Review of Financial Analysis
Early online date26 Jul 2016
Publication statusPublished - 1 Oct 2016


  • acquisitions of financial institutions
  • earnouts
  • propensity score matching
  • Rosenbaum-bounds


Dive into the research topics of 'Earnout financing in the financial services industry'. Together they form a unique fingerprint.

Cite this