Market Response to European Regulation of Business Combinations

Abstract:     
Acquisitions, mergers and other business agreements are facing increasing regulatory scrutiny, even when they are among firms domiciled outside the territory of the regulatory authorities. Some noteworthy recent examples involve mergers between American firms that were prohibited by regulators from the European Commission. Reciprocation by regulators from other jurisdictions seems a likely future trend. There are obvious consequences for the successful completion of proposed global business arrangements. With extra-territorial intervention, the chance of prohibition by at least one group of regulators is, of course, much larger than by any single jurisdiction. This paper explains the regulatory procedures of the European Commission with respect to business combinations. It documents the price reactions of subject firms on various dates from the initial announcement to the final regulatory decision. There is evidence that the market can predict the outcome of a regulatory investigation. Despite allegations in the American financial press, there is little evidence that European regulators discriminate against non-European firms by either investigating them more assiduously or prohibiting their combinations more often.

Number of Pages in PDF File: 46

JEL Classification: G15,G18, G34

working papers series