The Impact of Merger Legislation on Bank Mergers

Posted by Social Science Research Network

The Impact of Merger Legislation on Bank Mergers

Elena Carletti (Bocconi University), Steven Ongena (University of Zurich), Jan-Peter Siedlarek (Federal Reserve Banks) & Giancarlo Spagnolo (Stockholm School of Economics)

Abstract:        We find that stricter merger control legislation increases abnormal announcement returns of targets in bank mergers by 7 percentage points. Analyzing potential explanations for this result, we document an increase in the pre-merger profitability of targets, a decrease in the size of acquirers and a decreasing share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks and the stock market response of rivals appear unaffected. The evidence suggests that the strengthening of merger control leads to more efficient and more competitive transactions.