Working Paper: CEPR ID: DP8447
Authors: Elena Carletti; Philipp Hartmann; Steven Ongena
Abstract: We construct a unique dataset of legislative reforms in merger control legislation that occurred in nineteen industrial countries in the period 1987-2004, and test the economic impact of these changes on firms? stock prices. In line with the standard monopolistic hypothesis, we find that the strengthening of merger control decreases the stock prices of non-financial firms. In contrast, we find that bank stock prices increase. Cross sectional regressions show that the discretion embedded in the supervisory control of bank mergers is a major determinant of the positive bank stock returns. This suggests that merger control is anticipated to provide a 'checks and balances' mechanism that mitigates the value-destroying influence of unmediated supervisory control. We provide a case study further supporting this interpretation.
Keywords: financial regulation; legal institutions; merger control
JEL Codes: D4; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Anticipation of enhanced merger control (G34) | Increased investor confidence in the banking sector (G21) |
| Strengthening of merger control legislation (L41) | Decrease in stock prices of nonfinancial firms (G32) |
| Strengthening of merger control legislation (L41) | Increase in bank stock prices (G21) |
| Characteristics of supervisory control (E61) | Positive bank stock returns (G17) |