The Economic Impact of Merger Control: What is Special About Banking?

Carletti, Hartmann and Ongena

Discussant: Thorsten Beck

Main messages of the paper

Banking is special because stock returns react differently from non-financial firms after the strengthening of M&A legislation

Channel might be M&A legislation as counterweight to supervisory review process

This paper relates to two literatures: Effects of concentration

Different from non-financial sector What is special about banking?

Structure of the paper

Strengthening of M&A legislation is associated with lower cumulative abnormal returns (CAR) in non-financial sectors and higher CARs in banking

While there are no significant changes in non-financial sectors, bank targets increase in size and profitability after strengthening of M&A legislation

Countries with more opaque supervisory reviews see larger CARs after strengthening of M&A legislation

My concerns: No theoretical/conceptual framework Different combination of these results might provide

different interpretation

The underlying data – competition legislation

Extensive data work, which has resulted in an exciting and important database

My concern: Details of database not used to full extent in this paper Four dimensions of merger policy regime never

used in empirical work Interaction of merger policy regime and

supervisory review not explored My suggestion: Data could be used for

other empirical endeavors, such as Effect on efficiency, stability What determines changes in M&A legislation?

M&A Legislation and stock returns

The results: Strengthening of M&A legislation is associated with lower cumulative abnormal returns (CAR) in non-financial sectors and higher CARs in banking

My concern: What about expectations on impending changes to

competition legislation as in the case of Italy (search for first discussion in the media).

My suggestions: Is the break really around the timing of adoption? Why not look at intensity of changes as function of

what dimensions of merger policy regime were reformed?

Explore differences in effect across banks of different characteristics (size, solvency etc.)

M&A Legislation and M&A characteristics

The results: no significant changes in non-financial sectors, bank targets increase in size and profitability

My concern: Is there a general trend in banking towards

bigger mergers? My suggestions:

Look at returns of target and acquirer banks around the strengthening of M&A legislation

Explore differences in effect across countries with different supervisory review processes

M&A Legislation and supervisory review

The results: Countries with more opaque supervisory reviews see larger CARs after adoption of merger policy legislation

My concerns: Clustered errors? Few degrees of freedom for many different

hypotheses My suggestions:

Re-run the same regression for the time period before and after adoption of laws – differences in differences

Interaction of supervisory review variables with changes in M&A legislation

Are banks special? Interpretation of the results

The authors’ interpretation: Strengthening of M&A legislation countered the overall negative effect that supervisory stability-oriented focus has on valuation of banks, resulting in positive CAR

Alternative interpretation (1): bigger mergers following reform of M&A legislation led to more Too-Big-To-Close banks, reflected in higher CARs.

Alternative interpretation (2): bigger mergers following reform of M&A legislation led to more stable banks (Beck et al., 2006) and therefore higher CARs

Conclusions

Contribution of the paper: New exciting database Interesting results that show potential trade-off

between stability and efficiency My concerns:

Theoretical/conceptual framework missing Results raise more questions than they give

answers My suggestions:

Work more on the channels Exploit data to larger extent