 The Valuation Effects of Prime Rate Revisions: Is There an Advantage of Being First?*Mohamed Ariff () and Asjeet S. Lamba International Review of Finance, 2006, vol. 6, issue 3‐4, 177-194 Abstract: US banks making prime rate revisions are known to suffer stock price declines, which is consistent with the Stiglitz–Weiss adverse selection theory, given the relative stickiness of interest rates. If banks suffer price declines, then why are some banks consistent leaders when revising prime rates? This research question is the focus of our paper and is examined in the relatively concentrated banking system of Singapore. Lead banks in Singapore initiating a large number of rate increases earned an average abnormal return of 5.2%, while non‐lead banks also experienced positive abnormal returns of 3.9%, a result not in agreement with US‐specific evidence. We argue that the rate increases (decreases) resulting in a significant stock price increase (decrease) for lead banks are consistent with a valuation effect in a concentrated banking system. Our results could be explained as a valuation effect from anticipated higher profits or as reward for being first. The first mover advantage may thus also have signaling value on quality. Date: 2006 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:6:y:2006:i:3-4:p:177-194 Ordering information: This journal article can be ordered from Access Statistics for this article International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman More articles in International Review of Finance from International Review of Finance Ltd. |
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