The financial impact of merger control

Does merger control make any difference? In the recent years, researchers have been struggling with identifying the effects of competition policy on economic outcomes. In a recent discussion paper, Elena Carletti (CFS, Wharton and TILEC), Philipp Hartmann (ECB and CEPR) and Steven Ongena (TILEC and CEPR) provide some surprising evidence. Working with a unique dataset of legislative changes in industrial countries, they identify events that strengthen the control of mergers and acquisitions, analyze their impact on banks and non-financial firms, and explain the different reactions observed by the various regulatory characteristics of the banking sector. Covering nineteen countries for the period from 1987 to 2004, they find that more competition-oriented merger control increases the stock prices of banks and decreases the stock prices of non-financial firms. A major determinant of the positive bank returns is the degree of opaqueness that characterizes the institutional setup for supervisory bank merger reviews: the less transparent are the supervisory reviews, the higher the valuation gains of banks in anticipation of changes in the control of concentrations. These results show the importance of sector characteristics and of the interplay between different regulations in explaining the effects of a particular legislative change.