The Economic Impact of Merger Control Legislation

48 Pages Posted: 25 Jun 2011

See all articles by Elena Carletti

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Philipp Hartmann

European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: June 2011

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.

Keywords: financial regulation, legal institutions, merger control

JEL Classification: D4, G21, G28

Suggested Citation

Carletti, Elena and Hartmann, Philipp and Ongena, Steven R. G., The Economic Impact of Merger Control Legislation (June 2011). CEPR Discussion Paper No. DP8447. Available at SSRN: https://ssrn.com/abstract=1871558

Elena Carletti (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Philipp Hartmann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49 69) 1344 7356 (Phone)
(49 69) 1344 8553 (Fax)

Centre for Economic Policy Research (CEPR) - International Macroeconomics

London
United Kingdom

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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