Working Paper: CEPR ID: DP14449
Authors: Giancarlo Spagnolo; Elena Carletti; Steven Ongena; Janpeter Siedlarek
Abstract: The effect of regulations on the banking sector is a key question for financial intermediation. This paper provides evidence that merger control regulation, although not directly targeted at the banking sector, has substantial economic effects on bank mergers. Based on an extensive sample of European countries, we show that target announcement premia increased by up to 16 percentage points for mergers involving control shifts after changes in merger legislation, consistent with a market expectation of increased profitability. These effects go hand-in-hand with a reduction in the propensity for mergers to create banks that are too-big-to-fail in their country.
Keywords: banks; regulation; mergers and acquisitions; merger control; antitrust
JEL Codes: G21; G34; K21; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of stricter merger control legislation (K21) | increase in announcement premia of bank mergers (G34) |
| introduction of stricter merger control legislation (K21) | decrease in likelihood of mergers creating 'too big to fail' (TBTF) banks (F65) |
| decrease in likelihood of mergers creating 'too big to fail' (TBTF) banks (F65) | higher announcement premia of bank mergers (G34) |
| mergers resulting in a TBTF bank (G28) | lower target announcement returns (G12) |