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Published December 2004 | public
Journal Article

Market Response to European Regulation of Business Combinations


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.

Additional Information

© 2004 School of Business Administration, University of Washington. We thank Eugene Fama, Michel Levasseur, Stephen Ross, participants at the UCLA Business Forecast, the 2002 EFMA Conference, the 2002 EFA Conference, the 2002 London Business School finance seminar, and Jonathan Karpoff (the editor), for constructive comments and suggestions.

Additional details

August 19, 2023
October 20, 2023