Wednesday, August 17, 2016
Elena Carletti, Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS), Steven Ongena, University of Zurich - Department of Banking and Finance; Swiss Finance Institute, Jan-Peter Siedlarek, Federal Reserve Banks - Federal Reserve Bank of Cleveland, and Giancarlo Spagnolo, Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF analyze The Impact of Merger Legislation on Bank Mergers.
ABSTRACT: We find that stricter merger control legislation increases abnormal announcement returns of targets in bank mergers by 7 percentage points. Analyzing potential explanations for this result, we document an increase in the pre-merger profitability of targets, a decrease in the size of acquirers, and a decreasing share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks, and the stock market response of rivals appear unaffected. The evidence suggests that the strengthening of merger control leads to more efficient and more competitive transactions.