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The Economic Impact of Merger Control LegislationElena CarlettiUniversity of Frankfurt - Center for Financial Studies Steven OngenaTilburg University - CentER, European Banking Center (EBC); Centre for Economic Policy Research (CEPR) Philipp HartmannEuropean Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics June 6, 2012 TILEC Discussion Paper No. 2008-006 FDIC Center for Financial Research Working Paper No. 2008-12 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.
Number of Pages in PDF File: 54 Keywords: mergers and acquisitions, competition policy, legal institutions, financial regulation JEL Classification: G21, G28, D4 working papers seriesDate posted: February 20, 2008 ; Last revised: June 6, 2012Suggested CitationContact Information
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