IDEAS home Printed from https://ideas.repec.org/p/zbw/cfswop/200804.html
   My bibliography  Save this paper

The economic impact of merger control legislation

Author

Listed:
  • Carletti, Elena
  • Hartmann, Philipp
  • Onega, Steven

Abstract

Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen the competition control of mergers and acquisitions, analyze their impact on banks and non-financial firms and explain the different reactions observed with specific regulatory characteristics of the banking sector. Covering nineteen countries for the period 1987 to 2004, we find that more competition-oriented merger control increases the stock prices of banks and decreases the stock prices of non-financial firms. Bank targets become more profitable and larger, while those of non-financial firms remain mostly unaffected. A major determinant of the positive bank returns is the degree of opaqueness that characterizes the institutional setup for supervisory bank merger reviews. The legal design of the supervisory control of bank mergers may therefore have important implications for real activity.

Suggested Citation

  • Carletti, Elena & Hartmann, Philipp & Onega, Steven, 2007. "The economic impact of merger control legislation," CFS Working Paper Series 2008/04, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:200804
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/25539/1/559762062.PDF
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jean-Jacques Laffont & David Martimort, 1999. "Separation of Regulators Against Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 232-262, Summer.
    2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The cost of banking regulation," Proceedings 937, Federal Reserve Bank of Chicago.
    3. Alain de Serres & Shuji Kobayakawa & Torsten Sløk & Laura Vartia, 2006. "Regulation of Financial Systems and Economic Growth," OECD Economics Department Working Papers 506, OECD Publishing.
    4. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, October.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    6. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 639-670.
    7. Vander Vennet, Rudi, 2002. "Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 254-282, February.
    8. Torsten Persson & Gérard Roland & Guido Tabellini, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1163-1202.
    9. Hughes, Joseph P. & Mester, Loretta J. & Moon, Choon-Geol, 2001. "Are scale economies in banking elusive or illusive?: Evidence obtained by incorporating capital structure and risk-taking into models of bank production," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2169-2208, December.
    10. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
    11. Allen N. Berger & Astrid A. Dick & Lawrence G. Goldberg & Lawrence J. White, 2007. "Competition from Large, Multimarket Firms and the Performance of Small, Single-Market Firms: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 331-368, March.
    12. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics and Politics of the Relaxation of Bank Branching Restrictions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1437-1467.
    13. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    14. John H. Boyd & Gianni De Nicoló, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, June.
    15. Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
    16. Joseph P. Hughes & Loretta J. Mester, 1998. "Bank Capitalization And Cost: Evidence Of Scale Economies In Risk Management And Signaling," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 314-325, May.
    17. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
    18. Simon Evenett, 2004. "The Cross-Border Mergers and Acquisitions Wave of the Late 1990s," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 411-467, National Bureau of Economic Research, Inc.
    19. Elena Carletti & Philipp Hartmann & Giancarlo Spagnolo, 2007. "Bank Mergers, Competition, and Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1067-1105, August.
    20. Jayaratne, Jith & Strahan, Philip E, 1998. "Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 239-273, April.
    21. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2002. "Courts: the Lex Mundi Project," NBER Working Papers 8890, National Bureau of Economic Research, Inc.
    22. Forslid, Rikard & Häckner, Jonas & Muren, Astri, 2005. "When do Countries Introduce Competition Policy?," CEPR Discussion Papers 5162, C.E.P.R. Discussion Papers.
    23. Brady, Una & M. Feinberg, Robert, 2000. "An examination of stock-price effects of EU merger control policy," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 885-900, August.
    24. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
    25. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
    26. Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2004. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 593-622, June.
    27. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    28. Bittlingmayer, George & Hazlett, Thomas W., 2000. "DOS Kapital: Has antitrust action against Microsoft created value in the computer industry?," Journal of Financial Economics, Elsevier, vol. 55(3), pages 329-359, March.
    29. Rossi, Stefano & Volpin, Paolo F., 2004. "Cross-country determinants of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 74(2), pages 277-304, November.
    30. Becher, David A., 2009. "Bidder returns and merger anticipation: Evidence from banking deregulation," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 85-98, February.
    31. Thakor, Anjan V. & Boot, Arnoud (ed.), 2008. "Handbook of Financial Intermediation and Banking," Elsevier Monographs, Elsevier, edition 1, number 9780444515582.
    32. Huang, Rocco, 2007. "Evaluating the real effect of bank branching deregulation: comparing contiguous counties across U.S. state borders," Working Paper Series 788, European Central Bank.
    33. Stijn Claessens & Luc Laeven, 2005. "Financial Dependence, Banking Sector Competition, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 179-207, March.
    34. Baldwin, Robert E. & Winters, L. Alan (ed.), 2004. "Challenges to Globalization," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226036151.
    35. Schwert, G William, 1981. "Using Financial Data to Measure Effects of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 121-158, April.
    36. Robert Litan & William Isaac & William Taylor, 1994. "Financial Regulation," NBER Chapters, in: American Economic Policy in the 1980s, pages 519-572, National Bureau of Economic Research, Inc.
    37. I. Serdar Dinc & Isil Erel, 2013. "Economic Nationalism in Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 68(6), pages 2471-2514, December.
    38. Berger, Allen N. & Saunders, Anthony & Scalise, Joseph M. & Udell, Gregory F., 1998. "The effects of bank mergers and acquisitions on small business lending," Journal of Financial Economics, Elsevier, vol. 50(2), pages 187-229, November.
    39. Craig O. Brown & I. Serdar Dinç, 2005. "The Politics of Bank Failures: Evidence from Emerging Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1413-1444.
    40. Ellert, James C, 1976. "Mergers, Antitrust Law Enforcement and Stockholder Returns," Journal of Finance, American Finance Association, vol. 31(2), pages 715-732, May.
    41. Elena Carletti & Philipp Hartmann, 2003. "Competition and stability: what's special about banking?," Chapters, in: Paul Mizen (ed.), Monetary History, Exchange Rates and Financial Markets, chapter 8, Edward Elgar Publishing.
    42. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 135-194, February.
    43. Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 47-67, February.
    44. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May.
    45. Kroszner, Randall S & Strahan, Philip E, 1996. "Regulatory Incentives and the Thrift Crisis: Dividends, Mutual-to-Stock Conversions, and Financial Distress," Journal of Finance, American Finance Association, vol. 51(4), pages 1285-1319, September.
    46. Nicolas Véron, 2008. "Europe’s Banking Challenge: Reregulation without Refragmentation," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(04), pages 51-59, December.
    47. Nihat Aktas & Eric de Bodt & Richard Roll, 2007. "Is European M&A Regulation Protectionist?," Economic Journal, Royal Economic Society, vol. 117(522), pages 1096-1121, July.
    48. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2007. "The Political Economy of European Merger Control: Evidence using Stock Market Data," Journal of Law and Economics, University of Chicago Press, vol. 50(3), pages 455-489.
    49. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    50. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
    51. Fabio Panetta & Dario Focarelli, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Italian Market for Bank Deposits," CEIS Research Paper 10, Tor Vergata University, CEIS.
    52. Dario Focarelli & Fabio Panetta, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits," American Economic Review, American Economic Association, vol. 93(4), pages 1152-1172, September.
    53. Singal, Vijay, 1996. "Airline Mergers and Competition: An Integration of Stock and Product Price Effects," The Journal of Business, University of Chicago Press, vol. 69(2), pages 233-268, April.
    54. Paul Mizen (ed.), 2003. "Monetary History, Exchange Rates and Financial Markets," Books, Edward Elgar Publishing, number 2818.
    55. Eckbo, B Espen, 1992. "Mergers and the Value of Antitrust Deterrence," Journal of Finance, American Finance Association, vol. 47(3), pages 1005-1029, July.
    56. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2004. "Market Response to European Regulation of Business Combinations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(4), pages 731-757, December.
    57. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
    58. Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
    59. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    60. Grout, Paul A. & Zalewska, Anna, 2006. "The impact of regulation on market risk," Journal of Financial Economics, Elsevier, vol. 80(1), pages 149-184, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carletti, Elena & Ongena, Steven & Siedlarek, Jan-Peter & Spagnolo, Giancarlo, 2015. "The Impact of Merger Legislation on Bank Mergers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 530, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Boris Begović & Dušan Popović, 2019. "Merger Control and Economic Growth of LDCs: Some Observations and Recommendations," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(2), pages 381-408, March.
    3. Ongena, Steven & Penas, María Fabiana, 2009. "Bondholders' wealth effects in domestic and cross-border bank mergers," Journal of Financial Stability, Elsevier, vol. 5(3), pages 256-271, September.
    4. Carletti, Elena & Ongena, Steven & Siedlarek, Jan-Peter & Spagnolo, Giancarlo, 2021. "The impacts of stricter merger legislation on bank mergers and acquisitions: Too-Big-To-Fail and competition," Journal of Financial Intermediation, Elsevier, vol. 46(C).
    5. Svetlana B. Avdasheva & Dina V. Tsytsulina, 2014. "The Effects Of Competition Policy: Merger Approval, Entry Barrier Removal, Antitrust Enforcement Compared," HSE Working papers WP BRP 34/FE/2014, National Research University Higher School of Economics.
    6. Kick, Thomas & Pfingsten, Andreas, 2011. "The importance of qualitative risk assessment in banking supervision before and during the crisis," Discussion Paper Series 2: Banking and Financial Studies 2011,09, Deutsche Bundesbank.
    7. Patrice Bougette & Oliver Budzinski & Frédéric Marty, 2024. "Ex-ante versus Ex-post in Competition Law Enforcement: Blurred Boundaries and Economic Rationale," Working Papers halshs-04604840, HAL.
    8. Joaquín Maudos & Xavier Vives, 2019. "Competition Policy in Banking in the European Union," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 27-46, August.
    9. Apergis, Nicholas & Dastidar, Sayantan Ghosh, 2024. "Local stock liquidity and local factors: Fresh evidence from US firms across states," Research in International Business and Finance, Elsevier, vol. 67(PA).
    10. Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sorensen, 2008. "Risk sharing and portfolio allocation in EMU," European Economy - Economic Papers 2008 - 2015 334, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carletti, Elena & Hartmann, Philipp & Ongena, Steven, 2007. "The economic impact of merger control: what is special about banking?," Working Paper Series 786, European Central Bank.
    2. Carletti, Elena & Ongena, Steven & Siedlarek, Jan-Peter & Spagnolo, Giancarlo, 2015. "The Impact of Merger Legislation on Bank Mergers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 530, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    3. Carletti, Elena & Ongena, Steven & Siedlarek, Jan-Peter & Spagnolo, Giancarlo, 2021. "The impacts of stricter merger legislation on bank mergers and acquisitions: Too-Big-To-Fail and competition," Journal of Financial Intermediation, Elsevier, vol. 46(C).
    4. Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin B., 2011. "How effective is European merger control?," European Economic Review, Elsevier, vol. 55(7), pages 980-1006.
    5. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
    6. Beck, Thorsten, 2008. "Bank competition and financial stability : friends or foes ?," Policy Research Working Paper Series 4656, The World Bank.
    7. Xavier Vives, 2011. "Competition and Stability in Banking," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.),Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 12, pages 455-502, Central Bank of Chile.
    8. Berger, Allen N. & El Ghoul, Sadok & Guedhami, Omrane & Roman, Raluca A., 2022. "Geographic deregulation and banks’ cost of equity capital," Journal of International Money and Finance, Elsevier, vol. 120(C).
    9. John H. Boyd & Mr. Gianni De Nicolo & Abu M. Jalal, 2009. "Bank Competition, Risk, and Asset Allocations," IMF Working Papers 2009/143, International Monetary Fund.
    10. Tomaso Duso & Klaus Gugler & Burcin Yurtoglu, 2005. "EU Merger Remedies: A Preliminary Empirical Assessment," CIG Working Papers SP II 2005-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    11. Goetz, Martin R., 2018. "Competition and bank stability," Journal of Financial Intermediation, Elsevier, vol. 35(PA), pages 57-69.
    12. Tomaso Duso & Klaus Gugler & Florian Szücs, 2013. "An Empirical Assessment of the 2004 EU Merger Policy Reform," Economic Journal, Royal Economic Society, vol. 123(11), pages 596-619, November.
    13. Beck, Thorsten & De Jonghe, Olivier & Schepens, Glenn, 2013. "Bank competition and stability: Cross-country heterogeneity," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 218-244.
    14. Brei, Michael & Jacolin, Luc & Noah, Alphonse, 2020. "Credit risk and bank competition in Sub-Saharan Africa," Emerging Markets Review, Elsevier, vol. 44(C).
    15. Beck, T.H.L. & De Jonghe, O.G. & Schepens, G., 2012. "Bank Competition and Stability : Cross-country Heterogeneity (Revised version of CentER DP 2011-080)," Other publications TiSEM f600cdef-3c8b-4b85-9fed-6, Tilburg University, School of Economics and Management.
    16. Michael Cichello & Douglas Lamdin, 2006. "Event Studies and the Analysis of Antitrust," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 229-245.
    17. repec:zbw:bofrdp:2011_007 is not listed on IDEAS
    18. Hong Liu & Philip Molyneux & Linh H. Nguyen, 2012. "Competition and risk in South East Asian commercial banking," Applied Economics, Taylor & Francis Journals, vol. 44(28), pages 3627-3644, October.
    19. Günster, Andrea & van Dijk, Mathijs, 2016. "The impact of European antitrust policy: Evidence from the stock market," International Review of Law and Economics, Elsevier, vol. 46(C), pages 20-33.
    20. Payam Hanafizadeh & Seyedali Marjaie, 2020. "Trends and turning points of banking: a timespan view," Review of Managerial Science, Springer, vol. 14(6), pages 1183-1219, December.
    21. Randall S. Kroszner & Philip E. Strahan, 2014. "Regulation and Deregulation of the US Banking Industry: Causes, Consequences, and Implications for the Future," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 485-543, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Mergers and Acquisitions; Competition Policy; Legal Institutions; Financial Regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:200804. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/ifkcfde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.