Earnout financing in the financial services industry

Barbopoulos, L. G., Molyneux, P. and Wilson, J. O.S. (2016) Earnout financing in the financial services industry. International Review of Financial Analysis, 47, pp. 119-132. (doi: 10.1016/j.irfa.2016.07.001)

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Abstract

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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Barbopoulos, Dr Leonidas
Authors: Barbopoulos, L. G., Molyneux, P., and Wilson, J. O.S.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:International Review of Financial Analysis
Publisher:Elsevier
ISSN:1057-5219
ISSN (Online):1873-8079
Published Online:26 July 2016
Copyright Holders:Copyright © 2017 Elsevier Inc.
First Published:First published in International Review of Financial Analysis 47: 119-132
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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