Low Interest Rates and Banks’ Profitability – Update October 2020

Low Interest Rates and Banks’ Profitability – Update October 2020

My last post on this topic was in May 2019.

Research continues on this important topic. What are the effects of Monetary policy on Financial Institution?

Please see my previous posts to find the issues. In this post I have compiled papers and articles published since my last post in 2019.

Rational Decision making by the firms
  • Lend More – When margins decline, the volumes must go up to maintain or increase profits. This increases risk taking.
  • Diversify – Look for other sources of earnings
  • Consolidate – Merge with other banks as a business strategy to grow loan volumes.

How do banks make money? What is source of their income? How much is Net interest income? How much is Non Interest Income?

As you can see from the graphs below, Net interest income of banks is going up. Although the net interest margins are down, Banks are earning their income mostly from net interest income.

Volumes of Outstanding loans must be going up to make up for decrease in margins.

Sources of interest income can be

  • Commercial loans
  • Real Estate loans
  • Auto Loans
  • Credit cards
  • Student Loans

Additionally consolidation among the banks can be partially explained by the decling number of banks. See graph below.

Diversification to find other sources of earnings.

Image Source: FRED
EFFECTIVE FEDERAL FUNDS RATE (FEDFUNDS)

Image Source: FRED
NET INTEREST MARGIN FOR ALL U.S. BANKS (USNIM)

Image Source: Statista
AVERAGE NET INTEREST MARGIN OF BANKS IN THE UNITED STATES FROM 1995 TO 2019

Image Source: Liberty Street Economics 2017

Image Source: FRED
BANK’S NON-INTEREST INCOME TO TOTAL INCOME FOR UNITED STATES

Image Source: FRED
Net Interest Income for Commercial Banks in United States

Image Source: FRED
Bank Credit, All Commercial Banks (TOTBKCR)

Image Source: FRED
Loans and Leases in Bank Credit, All Commercial Banks (TOTLL)

Image Source: FRED
Commercial and Industrial Loans, All Commercial Banks (BUSLOANS)

Image Source: FRED
REAL ESTATE LOANS, ALL COMMERCIAL BANKS (REALLN)

Image Source: FRED
Consumer Loans, All Commercial Banks (CONSUMER)

Image Source: FRED
COMMERCIAL BANKS IN THE U.S. (USNUM)

Key Terms

  • Net Interest Margin
  • Profitability
  • Interest Income
  • Non Interest Income
  • Monetary Policy
  • Fed Funds Rate
  • 10 Year T Bond’s Rate
  • Shadow Banking
  • Search for Yield
  • Risk Taking
  • Housing Loans
  • Auto Loan
  • Deposits
  • Credit Cards
  • Money Markets Mutual Funds
  • Money Markets
  • Capital Markets
  • International Capital Flows
  • Diversification
  • Mergers
  • To Big to Fail
  • Non Core Business

My Related Posts

Low Interest Rates and Bank’s Profitability – Update May 2019

Low Interest Rates and Banks’ Profitability : Update July 2017

Low Interest Rates and Banks Profitability: Update – December 2016

Impact of Low Interest Rates on Bank’s Profitability

Non Interest Income of Banks: Diversification and Consolidation

Evolution of Banks Complexity

Shadow Banking

Funding Strategies of Banks

Low Interest Rates and Risk taking channel of Monetary Policy

Low Interest Rates and International Investment Position of USA

Low Interest Rates and International Capital Flows

Key Sources of Research

Bank profitability and risk‐taking under low interest rates

Jacob A. Bikker1,2 | Tobias M. Vervliet3

https://www.researchgate.net/publication/321277826_Bank_profitability_and_risk-taking_under_low_interest_rates

How banks can ease the pain of negative interest rates

March 3, 2020 | Article

https://www.mckinsey.com/business-functions/risk/our-insights/how-banks-can-ease-the-pain-of-negative-interest-rates#

Bank intermediation when interest rates are very low for long 

Michael Brei, Claudio Borio, Leonardo Gambacorta  

07 February 2020

https://voxeu.org/article/bank-intermediation-when-interest-rates-are-very-low-long

Implications of negative interest rates for the net interest margin and lending of euro area banks

by Melanie Klein

Monetary and Economic Department 

March 2020

Are Banks Exposed to Interest Rate Risk?

Pascal Paul and Simon W. Zhu

2020-16 | June 22, 2020 | Research from Federal Reserve Bank of San Francisco

Negative rates and the transmission of monetary policy

Prepared by Miguel Boucinha and Lorenzo Burlon[1]

Published as part of the ECB Economic Bulletin, Issue 3/2020.

https://www.ecb.europa.eu/pub/economic-bulletin/articles/2020/html/ecb.ebart202003_02~4768be84e7.en.html#toc2

Is there a zero lower bound?
The effects of negative policy rates on banks and firms

Revised June 2020


The impact of very low interest rates on bank profitability

https://www.rbnz.govt.nz/financial-stability/financial-stability-report/fsr-november-2019/the-impact-of-very-low-interest-rates-on-bank-profitability

Bank intermediation activity in a low interest rate environment

by Michael Brei, Claudio Borio and Leonardo Gambacorta

Monetary and Economic Department August 2019

Do Negative Interest Rates Explain Low Profitability of European Banks?1

Nicholas Coleman* and Viktors Stebunovs*

https://www.federalreserve.gov/econres/notes/feds-notes/do-negative-interest-rates-explain-low-profitability-of-european-banks-20191129.htm

Monetary Policy and Bank Equity Values in a Time of Low and Negative Interest Rates1

Miguel Ampudia2 and Skander J. Van den Heuvel3 May 2019

Negative Interest Rates, Bank Profitability and Risk-taking

Whelsy Boungou

https://www.researchgate.net/publication/334528681_Negative_Interest_Rates_Bank_Profitability_and_Risk-taking

Monetary Policy and Bank Profitability in a Low Interest Rate Environment: A Follow-up and a Rejoinder

By Charles Goodhart and Ali Kabiri

Monetary Policy and Bank Profitability in a Low Interest Rate Environment

Carlo Altavilla, Miguel Boucinha and José-Luis Peydró

Barcelona GSE Working Paper: 1101 | May 2019

https://www.barcelonagse.eu/research/working-papers/monetary-policy-and-bank-profitability-low-interest-rate-environment

Going Negative at the Zero Lower Bound: The Effects of Negative Nominal Interest Rates

Mauricio Ulate Campos Federal Reserve Bank of San Francisco

September 2019

NEGATIVE NOMINAL INTEREST RATES AND THE BANK LENDING CHANNEL

Gauti B. Eggertsson Ragnar E. Juelsrud Lawrence H. Summers Ella Getz Wold

Working Paper 25416

Implications of negative interest rates for the net interest margin and lending of euro area banks

Melanie Klein

Negative Nominal Interest Rates: A Primer

https://www.moneyandbanking.com/commentary/2019/11/30/negative-nominal-interest-rates-a-primer

Trends in the Noninterest Income of Banks

Joseph G. Haubrich and Tristan Young

https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2019-economic-commentaries/ec-201914-trends-in-the-noninterest-income-of-banks.aspx

Negative interest rates in the euro area: does it hurt banks?

https://www.oecd-ilibrary.org/economics/negative-interest-rates-in-the-euro-area-does-it-hurt-banks_d3227540-en

Interest rate pass-through in the low interest rate environment

Average net interest margin of banks in the United States from 1995 to 2019

https://www.statista.com/statistics/210869/net-interest-margin-for-all-us-banks/

Effective Federal Funds Rate (FEDFUNDS)

https://fred.stlouisfed.org/series/FEDFUNDS

https://www.newyorkfed.org/markets/obfrinfo

How low interest rates can hurt competition, and the economy

They help big companies more than small ones, depressing investment and productivity

https://review.chicagobooth.edu/economics/2019/article/how-low-interest-rates-can-hurt-competition-and-economy

Monetary Policy Report

June 12, 2020

Federal Reserve

The Long Decline of Global Interest Rates

Posted On :  Published By : BER staff

GLOBAL FINANCIAL STABILITY REPORT:

Markets in the Time of COVID-19

Chapter 4

April 2020

IMF

https://www.imf.org/en/Publications/GFSR/Issues/2020/04/14/global-financial-stability-report-april-2020

Low Interest Rates and Bank Profits

Katherine Di Lucido, Anna Kovner, and Samantha Zeller

Liberty Street Economics

2017

https://libertystreeteconomics.newyorkfed.org/2017/06/low-interest-rates-and-bank-profits.html

Bank’s Non-Interest Income to Total Income for United States (DDEI03USA156NWDB)

https://fred.stlouisfed.org/series/DDEI03USA156NWDB

Net Interest Income for Commercial Banks in United States

Net Interest Margin for all U.S. Banks (USNIM)

https://fred.stlouisfed.org/series/USNIM

Commercial Banks in the U.S. (USNUM)

https://fred.stlouisfed.org/series/USNUM

Loans and Leases in Bank Credit, All Commercial Banks (TOTLL)

https://fred.stlouisfed.org/series/TOTLL

Bank Credit, All Commercial Banks (TOTBKCR)

https://fred.stlouisfed.org/series/TOTBKCR

Commercial and Industrial Loans, All Commercial Banks (BUSLOANS)

https://fred.stlouisfed.org/series/BUSLOANS

Consumer Credit

https://fred.stlouisfed.org/categories/101

Real Estate Loans, All Commercial Banks (REALLN)

https://fred.stlouisfed.org/series/REALLN

Consumer Loans, All Commercial Banks (CONSUMER)

https://fred.stlouisfed.org/series/CONSUMER

Trends in Cross Border Mergers and Acquisitions

Trends in Cross Border Mergers and Acquisitions

 

From The Location of Cross-Border Mergers & Acquisitions in the USA

The vast majority of foreign direct investment (FDI) takes place in the form of cross-border mergers and acquisitions (M&As), see Evenett (2004). Analyzing the determinants and consequences of M&As is part of a large and growing literature in both (international) economics and (international) business. In economics, the dominant industrial organization (IO) literature does, however, typically not deal with the cross-border aspect of M&As, but instead concentrates on national M&As (Salant et al., 1983; O’Brien and Shaffer, 2005; Davis and Wilson, 2008; Egger and Hahn, 2010). A relatively small literature explicitly tries to include the cross-border aspect of M&As, but neglects the role of country factors that are central in international economics and international business to explain the structure and variation of cross-border transactions (Anand and Delios, 2002; Nocke and Yeaple, 2007, 2008, Bertrand and Zitouna, 2006; Fugmagalli and Vasconcelos, 2009, Halverson, 2012). The impact of country wide differences on cross-border M&As is taken explicitly into account by Neary (2004, 2007) who focuses on differences in comparative advantage between countries in a general equilibrium model to explain the occurrence of cross-border M&As. Empirical support for this idea is found by Brakman et al (2013), see also Blonigen et al (2014). In the international business literature – ever since the introduction of Dunning’s Ownership-Location-Internalization (OLI) framework – the mode of foreign entry and the choice of a foreign location have been central, but not explicitly modelled, as the OLI framework is more a taxonomy of relevant elements for location choice than a model (see for example Dunning, 2000).2

Both for the modern international business and international economics literature, however, whenever the location of cross-border M&As is taken into account, it usually refers to the host country as a whole. Where to locate the M&A within the host country is not analyzed. This amounts to assuming that if foreign firms have decided to engage in an M&A they choose a country but are indifferent regarding the target location within that country. This observation is the starting point for the present paper. In contrast to this observation with respect to cross-border M&As, the within country location choice with respect to greenfield FDI has been analyzed in depth. The seminal study by Head et al. (1995) was pivotal, and initiated a large and growing body of literature; see for example Fontagne and Mayer (2005); Basile et al., (2008); Defever, (2006); or Mataloni, (2011). Similar analyses for cross-border M&As are largely absent and this is striking because the bulk of FDI is in the shape of cross-border M&As. A priori, there is no reason to assume that the location decision of greenfield investments and M&As are similar. M&As, by definition, merge with or acquire existing firms at a specific location, whereas greenfield investments can, in principle, locate anywhere.

 

From Economic and Financial Integration and the Rise of Cross-Border M&As

FDI8

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI

  • Most of the Foreign Direct Investment (FDI) is in the form of Cross Border M&A.

 

The motivation for Cross Border M&A can be several:

  • Horizontal Integration ( Seeking Market Share)
  • Vertical Integration ( Control of Supply Chain)
  • Diversification (Market Seeking)

Research indicate that most of the cross border M&A are for seeking markets.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI2

  • Cross Border Mergers have been rising since 1985.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI3

 

  • Europe and North America dominate regions in which cross borders M&A are taking place.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI4

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI6

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI5

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI7

 

From  M&A Today: A Quick Pre-Financial Crisis Comparison

FDI9FTD10FDI11

Sources of M&A Data:

From Exploration of Mergers and Acquisitions Database: Deals in Emerging Asian Markets

There are four popular mergers and acquisitions databases,

  • SDC Platinum Mergers & Acquisitions (M&A) database,
  • Bloomberg M&A database,
  • Mergerstat M&A database,
  • ZEPHYR M&A database.

The SDC Platinum M&A Database covers domestic deals from 1979 to present and international deals from 1985 to present. Thomson Reuters states that the SDC includes more transactions than any other source and is widely used by the industry professionals and academic researchers.

The Bloomberg M&A database began putting the mergers and acquisitions product together in January 1998, with the intention of providing “100 percent coverage of all global deals as they were announced” (Ide, 2001). Bloomberg states that it has mergers and acquisitions staff in 12 offices worldwide compiling M&A data and relationships with over 800 legal and financial firms.

According to the Zimmerman (2006), the Mergerstat database covers both acquisitions and divestitures where at least one significant party is a U.S. company.

the ZEPHYR database covers transactions both inside and outside the U.S. and is particularly useful to study M&A deals in Europe (from 1997 forward for European transactions; from 2000 forward for North American transactions; global coverage begins in 2003).

 

Academic Libraries

 

Deloitte Consulting M&A Services

https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/solutions/merger-and-acquisition-services.html

 

KPMG Consulting

https://advisory.kpmg.us/content/kpmg-advisory/deal-advisory/ma-spotlight/ma-spotlight-june-2017.html?gclid=CjwKCAjwo4jOBRBmEiwABWNaMQAFeh6oDkE3FAlfCTiA8yKJkpHwuRPwcvBQlnZpFbm_JpODEt1AuRoC8t4QAvD_BwE

 

Thomson Reuters

https://financial.thomsonreuters.com/en/markets-industries/investment-banking-financial-advisory/mergers-and-acquisitions.html

 

PITCHBOOK.COM

http://get.pitchbook.com/mergers-and-acquisitions-data/?utm_term=mergers%20and%20acquisitions&utm_source=adwords&utm_campaign=ma&utm_content=ma&_bt=166828976390&_bm=p&_bn=g&gclid=CjwKCAjwo4jOBRBmEiwABWNaMSspbwSShK79f6OskgjShGv0_8c8qgrnqF35qv2Fu9t9ZvgwfzfTpxoCaa8QAvD_BwE

White and Case

http://mergers.whitecase.com

 

IMAA-Institute.org

https://imaa-institute.org/mergers-and-acquisitions-statistics/

FACTSET / MERGERSTAT

https://www.factset.com/data/company_data/mergers_acq

 

Bureau Van Dijk/ZEPHYR

https://www.bvdinfo.com/bvd/media/reports/global-fy-2016.pdf

 

STATISTA

https://www.statista.com/topics/1146/mergers-and-acquisitions/

UNCTAD / World Investment Report

http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/World_Investment_Report.aspx

Wilmer and Hale Law Firm

https://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/2017-WilmerHale-MA-Report.pdf

 

Dealogic.com

http://www.dealogic.com/insight/ma-outlook-2017/

Please also see other related posts:

Mergers and Acquisitions – Long Term Trends and Waves

External Balance sheets of Nations

Low Interest Rates and International Investment Position of USA

 

Key sources of Research:

CROSS-BORDER MERGERS AND ACQUISITIONS:
ON REVEALED COMPARATIVE ADVANTAGE AND MERGER WAVES

Steven Brakman
Harry Garretsen
Charles van Marrewijk

2008

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1087886https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1087886

 

Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics

CESifo Working Paper Series No. 1823

 

Steven Brakman

Harry Garretsen

Charles van Marrewijk

 

Date Written: October 2006

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=940348

 

Cross-border Mergers and Acquisitions: Their Role in Industrial Globalisation

2000

Nam-Hoon Kang and Sara Johansson

 

http://www.oecd-ilibrary.org/docserver/download/137157251088.pdf?expires=1505877469&id=id&accname=guest&checksum=BA90C157DC1196BE6E7C3CE1726D31FF

 

 

Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future

Katsuhiko Shimizua,*, Michael A. Hittb,1, Deepa Vaidyanathc,2, Vincenzo Pisanod,3

Available online 24 July 2004

 

 

 Determinants of Cross-Border Mergers and Acquisitions

Isil Erel / Rose C. Liao /  Michael S. Weisbach

March 15, 2011

https://fisher.osu.edu/supplements/10/9864/ELW_JFRound3Revision.pdf

The Cross-Border Mergers and Acquisitions Wave of the Late 1990s

Simon J. Evenett

 

http://www.nber.org/chapters/c9545.pdf

 

 

 

The Macroeconomic Determinants of Cross Border Mergers and Acquisitions and Greenfield Investments

Paula Neto; Antonio Brandão; António Cerqueira

2010

 

https://www.researchgate.net/profile/Antonio_Brandao3/publication/46466162_The_Macroeconomic_Determinants_of_Cross_Border_Mergers_and_Acquisitions_and_Greenfield_Investments/links/0912f50c5ab64daab5000000.pdf

 

 

The Impact of FDI, Cross Border Mergers and Acquisitions and Greenfield Investments on Economic Growth

Paula Neto; Antonio Brandão; António Cerqueira

2010

https://www.researchgate.net/profile/Antonio_Brandao3/publication/24111675_The_Impact_of_FDI_Cross_Border_Mergers_and_Acquisitions_and_Greenfield_Investments_on_Economic_Growth/links/0912f50c5ab651626b000000.pdf

 

Exploration of Mergers and Acquisitions Database: Deals in Emerging Asian Markets

 

http://www.myacme.org/ijmtp/IJMTPV14N1/3%20IJMTP14005%20Draft%203%20final.pdf

 

 

Cross Border Mergers and Acquisitions

Scott Whitaker

2016

 

 

Economic and Financial Integration and the Rise of Cross-Border M&As

STEVEN BRAKMAN

GUS GARITA

HARRY GARRETSEN

CHARLES VAN MARREWIJK

March 2009

 

 

 

The Location of Cross-Border Mergers & Acquisitions in the USA

Steven Brakman
Harry Garretsen
Charles Van Marrewijk

CESIFO WORKING PAPER NO. 5331

APRIL 2015

 

 

M&A Today: A Quick Pre-Financial Crisis Comparison

2017

 

https://financial.thomsonreuters.com/content/dam/openweb/documents/pdf/financial/pre-financial-crisis-comparison.pdf

 

 

 

 

Cross-Border Mergers and Acquisitions and Financial Development:
Evidence from Emerging Asia

Douglas H. Brooks and Juthathip Jongwanich

No. 249 | February 2011

 

https://www.adb.org/sites/default/files/publication/28703/economics-wp249.pdf

 

 

 

MERGERS AND ACQISITIONS (M&As)

Prepared by
Directorate for Financial and Enterprise Affairs, Investment Division, OECD

May 2004

 

https://www.imf.org/External/NP/sta/bop/pdf/diteg4a.pdf

 

 

 

OECD BENCHMARK DEFINITION OF FOREIGN DIRECT INVESTMENT:

FOURTH EDITION –

ISBN 978-92-64-04573-6 – © OECD 2008

 

https://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf

 

 

 

Economic and Other Impacts of Foreign Corporate Takeovers in OECD Countries

 

https://www.oecd.org/daf/inv/investment-policy/40476100.pdf

 

 

 

A Comparative Analysis of the Economic Effects of Cross-Border Mergers and Acquisitions in European Countries

Anita Maček

 

https://cdn.intechopen.com/pdfs-wm/38482.pdf

 

 

Mergers and Acquisitions – Long Term Trends and Waves

Mergers and Acquisitions – Long Term Trends and Waves

 

I can see now how low interest rates begets low interest rates.

Low Interest Rates and Business Investments seem to have a Circular Causality.

Low Interest rates result in low investments as a result of business decisions by corporations.  Please see my post Business Investments and Low Interest Rates.

Low Investments result in Low Interest Rates as a result of Monetary Policy response to boost investments and economic growth/GDP growth rates..

As a result, M&A activity, thus, increases, as companies seek inorganic growth rather than organic growth.

 

Historical Trends and Cycles

A. Long Term Interest Rates

From Real Interest Rates Over the Long Run

real-interest-rates

 

B. Business Investments

From Real Interest Rates Over the Long Run

investments

 

C.  Merger and Acquisitions
From M&A Statistics

usmabest

D. Worldwide Monthly M&A

From M&A Statistics

maaworld

ma-monthly

 

Mergers and Acquisitions Waves

  • THE FIRST WAVE: 1897 – 1904
  • THE SECOND WAVE: 1916 – 1929
  • THE THIRD WAVE: 1965 – 1969
  • THE FOURTH WAVE: 1984 – 1989
  • THE FIFTH WAVE: 1992 – 2000
  • THE SIXTH WAVE: 2003 – 2007

 

These waves are typically labeled as

  • the horizontal merger wave of the 1890s,
  • the vertical mergers of the 1920s,
  • the conglomerate merger wave of the 1960s,
  • the refocusing wave of the 1980s,
  • and the global wave of the 1990s
  • the private equity/LBO led wave of 2000s

 

From  The Business Environment / Mergers and Merger Waves: A Century of Cause and Effect / Killian J. McCarthy

Mergers are everyday occurrences. And individual mergers can be motivated by any number of motives. Proportionately, however, history tells us that most mergers are announced during a merger wave; that is, during a period of intense activity, which is usually followed by an interval of relatively less intense activity. And merger waves are very different animals.

Since the late 19th century, the world has experienced a number of major merger waves (see Figure 2.1). The first (ca. 1895–1904) and second (ca. 1918–1929) of these merger waves were US-based events, driven by changes in the physical operating environment of a US firm (Weston et al., 2004; Gaughan, 2010). The third (ca. 1960–1969) was driven, among other factors, by the rise of modern management theory (Weston & Mansinghka, 1971); a theory which spread from the USA to the UK. The fourth – the first anti-merger wave (ca. 1981–1989) – occurred when corporate raiders discovered that many of the conglomerates created in the 1960s were worth less than the sum of their parts (Shleifer & Vishny, 1991; Allen et al., 1995). And during this period, merger activity spread from the USA to the UK, and then to Continental Europe. The fifth (ca. 1991–2001) was driven by deregulation, market liberalization and globalization (Andrade et al., 2001; de Pamphilis, 2008; Gaughan, 2010), and during this merger wave records were broken in all regions (Sudarsanam and Mahate, 2003), as the wave spread from its usual North American base to engulf Europe and then Asia (de Pamphilis, 2008). Finally, in the sixth wave (ca 2003–2008), private equity firms took advantage of historically low interest rates to make speculative acquisitions. This was the first merger wave of the 21st century, and perhaps the first truly global merger wave.

 

Mergers and Acquisitions have gone up considerably in last few years.  2015 was the best year ever in history of M&A.  2016 also will prove to be almost as good as 2015.  As the interest rates rise, the M&A activity will pick up as companies would like to lock-in current low interest rates for capital.  Forward guidance by the Fed Reserve on interest rates increases for 2017 is also going to influence M&A decisions.

 

Please see my related posts:

Business Investments and Low Interest Rates

 

 

Key Sources of Research:

 

Real Interest Rates Over the Long Run

Decline and convergence since the 1980s

Kei-Mu Yi

Jing Zhang

 

Click to access kei-mu-yi-epp.pdf

 

 

M&A Statistics

https://imaa-institute.org/mergers-and-acquisitions-statistics/

 

 

Monthly M&A Insider – December 2016

http://mergermarketgroup.com/publication/ma-insider-december-2016/#.WIFzPrG-JUE

 

 

US M&A News and Trends

 

Click to access US_Flashwire_Monthly.pdf

 

 

2015 M&A TRENDS

financial.thomsonreuters.com

 

 

Eat or Be Eaten: A Theory of Mergers and Merger Waves

Gary Gorton, Matthias Kahl, Richard Rosen

NBER Working Paper No. 11364
Issued in May 2005

http://www.nber.org/papers/w11364

 

 

Understanding mergers and acquisitions: activity since 1990

Greg N. Gregoriou and Luc Renneboog

 

Click to access 02~Chapter_1.pdf

 

 

THE Q-THEORY OF MERGERS

Boyan Jovanovic Peter L. Rousseau

Working Paper 8740 http://www.nber.org/papers/w8740

Click to access w8740.pdf

 

 

Mergers as Reallocation

Boyan Jovanovic and Peter L. Rousseau

October 2002

http://www.nber.org/papers/w9279.pdf?new_window=1

 

 

Mergers and Technological Change: 1885-1998

Boyan Jovanovic and Peter L. Rousseau∗

May 15, 2001

 

Click to access merge23a.pdf

 

 

Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s

Bengt R. Holmström

Steven N. Kaplan

February 2001

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=261112

 

 

”What drives merger waves?”

Harford, Jarrad.

Journal of Financial Economics, V ol.77(2005):.529-560.

 

 

The Determinants of Merger Waves: An International Perspective

Dennis C. Mueller

Klaus Peter Gugler

2008

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1275293

 

 

The Determinants of Merger Waves

Klaus Peter Gugler

Dennis C. Mueller

B. Burcin Yurtoglu

January 2006

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=507282

 

 

Economists’ Hubris – The Case of Mergers and Acquisitions

Shahin Shojai

June 14, 2009

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1418986&download=yes

 

 

New Evidence and Perspectives on Mergers

Gregor Andrade

Mark L. Mitchell

Erik Stafford

January 2001

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=269313&download=yes

 

 

AN OVERVIEW ON THE DETERMINANTS OF MERGERS AND ACQUISITIONS WAVES

Vancea Mariana

University of Oradea Faculty f Economics

Click to access 055.pdf

 

 

DRIVERS OF MERGER WAVES A Revisit

Soegiharto

https://journal.ugm.ac.id/index.php/gamaijb/article/viewFile/5586/4557

 

 

Business Cycle and Aggregate Industry Merger

Srdan Komlenovic1, Abdullah Mamun2 & Dev Mishra2

University of Saskatchewan

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.527.8260&rep=rep1&type=pdf

 

 

Are There Waves in Merger Activity After All?

Dennis L. Gärtner and Daniel Halbheer

August 2008

ftp://ftp.repec.org/opt/ReDIF/RePEc/iso/ISU_WPS/92_ISU_full.pdf

 

 

Strategic merger waves: A theory of musical chairs

Flavio Toxvaerd

Journal of Economic Theory 140 (2008) 1 – 26

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.557.4982&rep=rep1&type=pdf

 

 

WAVES AND PERSISTENCE IN MERGER AND ACQUISITION ACTIVITY

John T. Barkoulas

Christopher F. Baum

Atreya Chakraborty

Click to access wp396.pdf

 

 

Causes and Consequences of Merger Waves

Jörn Kleinert Henning Klodt

 

Click to access kap1092.pdf