The Economic Impact of Merger Control Legislation

We construct a unique dataset of legislative changes in merger control that occurred in nineteen industrial countries in the period 1987-2004, and test the impact of these changes on the stock prices of both non-financial firms and banks. In line with the standard monopolistic hypothesis, we find that pro-competitive changes in merger control decrease the stock prices of firms. In stark contrast, we find that bank stock prices increase. Cross sectional regressions show that the opaqueness of the prudential control of bank mergers is a major determinant of the positive bank stock returns. This suggests that merger control is anticipated to act as a check and balance on prudential control. We provide case studies further supporting this interpretation.

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