#08-06
The Economic Impact of Merger Control Legislation
Elena Carletti, Philipp Hartmann
and Steven Ongena, December 2007
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.
Keywords: mergers and acquisitions, competition policy, legal institutions, financial regulation.
JEL classifications: G21, G28, D4.
