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How do regulatory costs affect mergers and acquisitions decisions and outcomes?

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  • Ince, Baris

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.

Suggested Citation

  • Ince, Baris, 2024. "How do regulatory costs affect mergers and acquisitions decisions and outcomes?," Journal of Banking & Finance, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:jbfina:v:163:y:2024:i:c:s0378426624000761
    DOI: 10.1016/j.jbankfin.2024.107156
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    More about this item

    Keywords

    Regulations; Regulatory costs; Economies of scale; Mergers and acquisitions; Value-increasing acquisitions;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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