Interest Rate Sensitivity as Motivation for Acquisitions: Evidence from Bank Holding Companies

50 Pages Posted: 19 Jul 2021 Last revised: 15 Feb 2022

See all articles by Joe López-Vilaró

Joe López-Vilaró

University of Arkansas

Caleb Rawson

University of Arkansas - Department of Accounting

Stephen P. Rowe

University of Arkansas

Date Written: July 16, 2021

Abstract

We examine the role of interest rate sensitivity for bank acquisitions. We predict and find that banks with greater fixed-rate loan portfolios are more (less) likely to be acquired in decreasing (increasing) rate environments as bank acquirers seek to acquire fixed-rate assets with higher rates than can be achieved through new loan originations. Further, this effect is stronger for targets that cannot fully benefit from their fixed-rate portfolio due to either poor operating performance or a weaker information environment. In further tests we find positive returns for acquirers at the time the fair values of the target are reported. This study sheds light on how bank acquisitions are impacted by interest rate sensitivity in changing interest rate environments and how loan fair value versus book value differences can have economic implications.

Keywords: Acquisitions, Interest Rates, Fair Value, Banking

JEL Classification: E430, E520, G210, G340, M410

Suggested Citation

López-Vilaró, Joe and Rawson, Caleb and Rowe, Stephen P., Interest Rate Sensitivity as Motivation for Acquisitions: Evidence from Bank Holding Companies (July 16, 2021). Available at SSRN: https://ssrn.com/abstract=3888318 or http://dx.doi.org/10.2139/ssrn.3888318

Joe López-Vilaró (Contact Author)

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Caleb Rawson

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Stephen P. Rowe

University of Arkansas ( email )

Business Bldg. 450
Fayetteville, AR 72701
United States

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