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Does deregulation induce competition in the market for corporate control? The special case of banking

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Listed author(s):
  • Ghosh, Chinmoy
  • Petrova, Milena
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    Abstract

    Using a sample of 936 acquisitions of commercial banks, we examine the relation between the probability to engage in value-reducing acquisitions and corporate governance structures, as well as the relation between acquirer announcement-period abnormal stock returns and antitakeover indices and measures, and how these relations were affected by the change in the market for corporate control, caused by deregulation due to the implementation of the Interstate Banking and Branching Efficiency Act of 1994 and the Financial Service Modernization Act of 1999. We find that prior to deregulation there is no relation between probability to engage in value destroying acquisitions or acquirer returns and antitakeover indices, whereas after the adoption of the FSMA, probability to engage in value destroying acquisitions and the stock market reaction to bidder M&A announcements are both significantly related to governance indexes and measures. Our findings further confirm the linkage between the market for corporate control, antitakeover indices and firm value.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613002586
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 12 ()
    Pages: 5220-5235

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5220-5235
    DOI: 10.1016/j.jbankfin.2013.06.002
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

    Keywords: Financial regulation; Corporate control; Corporate governance; Mergers and acquisitions;

    Find related papers by JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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    Cited by:

    1. Ghosh, Chinmoy & Hilliard, James & Petrova, Milena & Phani, B.V., 2016. "Economic consequences of deregulation: Evidence from the removal of voting cap in Indian banks," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 19-38.
    2. Liang, Hsin-Yu & Chen, I-Ju & Chen, Sheng-Syan, 2016. "Does corporate governance mitigate bank diversification discount?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 129-143.

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