The (Un)intended Consequences of M&A Regulatory Enforcements

Abstract

Economic and policy uncertainty affect merger and acquisition (M&A) activity. In this paper, we use Department of Justice (DOJ) and Federal Trade Commission (FTC) interventions in the M&A market to investigate whether uncertainty around regulatory enforcements also matters. Our results support this conjecture. Using the Hoberg and Phillips (2010) similarity scores to identify product market competitors, we confirm a clear and significant DOJ/FTC regulatory enforcements’ deterrence effect on future M&A transaction attempts, a result robust to many alternative specifications and confirmed in additional tests. This deterrence effect is (at least partly) driven by the length of the regulatory process, a factor that exacerbates enforcement uncertainty. Our results identify an (un)intended channel through which M&A regulation hampers efficient resources allocation.