the economic impact of merger control: what is special about banking? carletti, hartmann and ongena...
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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