How Do Regulatory Costs Affect M&A Decisions and Outcomes?

91 Pages Posted: 5 Sep 2020 Last revised: 3 Apr 2024

See all articles by Baris Ince

Baris Ince

University College Dublin

Date Written: July 21, 2020

Abstract

Regulations introduce substantial costs and constrain firms’ cost structures. This paper introduces a firm-specific measure of regulatory costs and explores its role in mergers and acquisitions (M&A) decisions; specifically, large (small) firms with high regulatory costs are likely to acquire (be acquired by) firms in the same industry. In contrast, regulatory costs do not have such an effect on cross-industry acquisitions. Herein, I introduce econometric techniques, including accounting for additional industry-specific variables, alternative regulatory cost measures, and difference-in-differences estimators, to address potential identification issues. Furthermore, regulatory costs drive acquisitions contributing to shareholders’ wealth; hence, regulatory cost burden is a crucial factor in M&A decisions and outcomes.

Keywords: Regulations, regulatory operating leverage, mergers and acquisitions, economies of scale, value increasing acquisitions

JEL Classification: G18, G34, L38

Suggested Citation

Ince, Baris, How Do Regulatory Costs Affect M&A Decisions and Outcomes? (July 21, 2020). Journal of Banking and Finance, Available at SSRN: https://ssrn.com/abstract=3657217 or http://dx.doi.org/10.2139/ssrn.3657217

Baris Ince (Contact Author)

University College Dublin ( email )

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