Does Competition Policy Affect Acquisition Efficiency? Evidence from the Reform of European Merger Control

Posted by Social Science Research Network

Does Competition Policy Affect Acquisition Efficiency? Evidence from the Reform of European Merger Control

Gishan Dissanaike (University of Cambridge), Wolfgang Drobetz & Paul Peyman Momtaz (University of Hamburg)

Abstract:      We use the reform of the European Commission Merger Regulation as a natural experiment to examine the more general relationship between merger control and the profitability of corporate acquisitions. Our results suggest that acquisition efficiency is significantly lower in controlled deals, although the reform-induced improvement of legal certainty ameliorated this effect. The valuation effect is more pronounced in concentrated industries and in national cultures where firms tend to be more intolerant to uncertainty. These findings are consistent with the hypothesis that uncertainty about merger control decisions impedes M&A activity, which amplifies managerial entrenchment and enables managers to make agency-motivated acquisitions.

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