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Publication Competition policy and the profitability of corporate acquisitions

Type

Working Paper

Institution(s)

University of Hamburg, University of Cambridge, UCLA Anderson

Year

2017

Author(s)

Gishan Dissanaike

Wolfgang Drobetz

Paul P. Momtaz

Research Area

Corporate Finance, Corporate Governance

Keywords

Mergers and acquisitions, acquirer returns, bidder wealth effects, antitrust law enforcement, competition policy, merger control, law and finance

Abstract

We exploit the reform of the European Commission Merger Regulation as a natural experiment to examine the relation between merger control and the profitability of corporate acquisitions. Our difference-in-differences results show that acquirer returns are lower in controlled deals, with the increase after reform-induced legal improvements suggesting a causal interpretation. Analyzing sources of value destruction, we find evidence that uncertainty about merger control decisions impedes the takeover threat, which amplifies managerial entrenchment and enables agency-motivated acquisitions. Valuation effects are more pronounced in concentrated industries, national cultures where firms are more intolerant to uncertainty, and countries with stronger law enforcement.

Presentations

FMA Latin America 2017 (Mexico City), SGF 2017 (Zürich)

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