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The Economic Impact of Merger Control Legislation

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  • Carletti, Elena
  • Hartmann, Philipp
  • Ongena, Steven

Abstract

We construct a unique dataset of legislative reforms in merger control legislation that occurred in nineteen industrial countries in the period 1987-2004, and test the economic impact of these changes on firms’ stock prices. In line with the standard monopolistic hypothesis, we find that the strengthening of merger control decreases the stock prices of non-financial firms. In contrast, we find that bank stock prices increase. Cross sectional regressions show that the discretion embedded in the supervisory control of bank mergers is a major determinant of the positive bank stock returns. This suggests that merger control is anticipated to provide a 'checks and balances' mechanism that mitigates the value-destroying influence of unmediated supervisory control. We provide a case study further supporting this interpretation.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8447.

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Date of creation: Jun 2011
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Handle: RePEc:cpr:ceprdp:8447

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Keywords: financial regulation; legal institutions; merger control;

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References

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Cited by:
  1. Lieven Baert & Rudi Vander Vennet, 2008. "Bank Market Structure and Firm Capital Structure," Working Paper / FINESS 2.1, DIW Berlin, German Institute for Economic Research.
  2. Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sorensen, 2008. "Risk sharing and portfolio allocation in EMU," European Economy - Economic Papers 334, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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