The impacts of stricter merger legislation on bank mergers and acquisitions: Too-Big-To-Fail and competition |
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| Institution: | 1. Bocconi University, IGIER and CEPR, Italy;2. University of Zürich, Swiss Finance Institute, KU Leuven and CEPR, Switzerland;3. Federal Reserve Bank of Cleveland, United States;4. SITE-Stockholm School of Economics, University of RomeTor Vergata, EIEF and CEPR Italy;1. Professor at Universitat Pompeu Fabra, Barcelona Graduate School of Economics and CEPR, Ramon Trias Fargas, 25-27 08005 Barcelona, Spain;2. Associate professor at Universidad de los Andes. Calle 19A No 1-37 Este, Bloque W, Bogotá, 111711, Colombia;1. Department of Finance, University of Illinois Urbana-Champaign, United States;2. Department of Finance, Erasmus University Rotterdam, Netherlands;1. Bank of Canada, 234 Wellington St, Ottawa, ON K1A 0G9, Canada;2. Centre for Economic Policy Research, London, United Kingdom;1. D’Amore-McKim School of Business, Northeastern University, USA;2. Olin Business School, Washington University in St. Louis, USA;1. Banco de Portugal, Economics and Research Department, Av, Almirante Reis 71, 1150-015 Lisbon, Portugal |
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| 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. |
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