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