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The Impact of Merger Legislation on Bank Mergers

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.

JEL Classification: G21, G34, K21, L40.
Keywords: banks, mergers and acquisitions, merger control, antitrust.

Suggested citation: Carletti, Elena, Steven Ongena, Jan-Peter Siedlarek, and Giancarlo Spagnolo, 2016. “The Impact of Merger Legislation on Bank Mergers,” Federal Reserve Bank of Cleveland Working Paper, no. 16-14R.

Published in the Journal of Financial Intermediation and available here.

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