The Economic Impact of Merger Control Legislation

Posted by D. Daniel Sokol

In their latest paper, Elena Carletti of the University of Frankfurt - Center for Financial Studies, Philipp Hartmann of the European Central Bank (ECB) and Centre for Economic Policy Research (CEPR) and Steven Ongena of Tilburg University analyze The Economic Impact of Merger Control Legislation.

ABSTRACT: Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen the competition control of mergers and acquisitions, analyze their impact on banks and non-financial firms and explain the different reactions observed with specific regulatory characteristics of the banking sector. Covering nineteen countries for the period 1987 to 2004, we find that more competition-oriented merger control increases the stock prices of banks and decreases the stock prices of non-financial firms. Bank targets become more profitable and larger, while those of non-financial firms remain mostly unaffected. A major determinant of the positive bank returns is the degree of opaqueness that characterizes the institutional setup for supervisory bank merger reviews. The legal design of the supervisory control of bank mergers may therefore have important implications for real activity.