DP8447 The Economic Impact of Merger Control Legislation

Author(s): Elena Carletti, Philipp Hartmann, Steven Ongena
Publication Date: June 2011
Keyword(s): financial regulation, legal institutions, merger control
JEL(s): D4, G21, G28
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8447

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.