Interest-rate exposure and bank mergers

Article Abstract:

Interest rates have no significant influence on the decision of banking institutions to merge. This observation is evident in a sample of 477 large bank mergers between 1980 and 1994, which shows that the level of acquisition activity has a higher degree of relationship with equity indices and a lower degree of relationship with interest rates for banks than for non-banks. The value of merger transactions is also more negatively correlated with interest rate changes and more positively correlated with yield curve spreads, with acquiring firms paying more and earning lower returns when interest rates are low.

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Comment on Esty, Narasimhan, and Tufano

Article Abstract:

Empirical evidence shows that interest rates have no significant effect on bank mergers, particularly on the value of transactions. Bank stocks, however, are generally not very sensitive to changes in interest rates. In addition, acquiring banks are more liability sensitive than target banks while the latter appear to have a stronger position ex post with respect to short-run rate changes. Interest rates also exert little influence on the pricing of bank mergers, with acquirers paying higher prices and earning lower returns when interest rates are low, and vice versa.

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Comment on Hadlock, Houston, and Ryngaert

Article Abstract:

Empirical evidence strongly suggests that banks with high levels of managerial ownership are less likely to be acquired and that CEOs of target banks depart following an acquisition. This observation is supported by an analysis of mergers and acquisitions in recent years and is consistent with the hypothesis assuming that management teams attempt to block takeover bids. Hence, the relationship between managerial ownership and preference for control reduces the possibility of a banking institution being acquired.

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