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Competition Policy and the Profitability of Corporate Acquisitions

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  • Dissanaike, Gishan
  • Drobetz, Wolfgang
  • Momtaz, Paul P.

Abstract

Merger control exists to help safeguard effective competition. However, findings from a natural experiment suggest that regulatory merger control reduces the profitability of corporate acquisitions. Uncertainty about merger control decisions reduces takeover threats from foreign and very large acquirers, therefore facilitating agency-motivated deals. Valuation effects are more pronounced in countries with stronger law enforcement and in more concentrated industries. Our results suggest that competition policy may impede the efficiency of the M&A market.

Suggested Citation

  • Dissanaike, Gishan & Drobetz, Wolfgang & Momtaz, Paul P., 2020. "Competition Policy and the Profitability of Corporate Acquisitions," Journal of Corporate Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:corfin:v:62:y:2020:i:c:s0929119919301142
    DOI: 10.1016/j.jcorpfin.2019.101510
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    8. Kim, Incheol & Lee, Suin & Sharma, Bina, 2023. "Competition law reform and firm performance: Evidence from developing countries," Emerging Markets Review, Elsevier, vol. 56(C).
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    More about this item

    Keywords

    Mergers and acquisitions (M&A); Acquirer returns; Acquisition efficiency; Bidder wealth effects; Antitrust law enforcement; Competition policy; Merger control; Law and finance; Takeover law;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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