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Market Response to European Regulation of Business Combinations

Published online by Cambridge University Press:  06 April 2009

Nihat Aktas ,
Eric de Bodt  and
Richard Roll
Nihat Aktas
Affiliation:
Aktas, aktas@fin.ucl.ac.be, Université Catholique de Louvain, 1 place des Doyens, 1348 Louvain-la-Neuve, Belgium
Eric de Bodt
Affiliation:
edebodt@hp-sc.univ-lille2.fr, Université de Lille 2-Esa, 1 place Déliot – BP381, 59020 Lille Cédex, France
Richard Roll
Affiliation:
rroll@anderson.ucla.edu, The Anderson School, UCLA, Los Angeles, CA 90095
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Abstract

Acquisitions, mergers, and other business agreements face increasing regulatory scrutiny, even when they involve firms domiciled outside the territory of regulatory authorities. Recent examples include mergers between American firms that were approved by American regulators but blocked by European regulators. Regulatory reciprocity seems a likely future trend. There are obvious consequences for the successful completion of future business combinations. This paper explains the regulatory procedures of the European Commission with respect to business combinations, documents the price reactions of subject firms on dates from the initial announcement to the final regulatory decision, and studies whether European regulators tend to shield European firms from foreign competition. Our main results are: i) the market clearly reacts to European regulatory intervention even when the subject firms are non-European, ii) the probability of intervention is not related to the nationality of the bidder, however, iii) when intervention does occur, the market anticipates it will be more costly when the bidder is non-European, so protectionism cannot be rejected outright, and iv) regulatory interventions are anticipated by investors, so they affect the initial announcement returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 4 , December 2004 , pp. 731 - 757
Copyright
Copyright © School of Business Administration, University of Washington 2004

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