Merger Laws, Globalization, and Corporate Value

Abstract

This paper is the first attempt to isolate the direct effect of competition laws on a country's merger activity and indirectly on corporate value. We find that, although the direct relationship between merger laws and Tobin's Q is positive and significant, once we control for the net cross-border merger flows in a country, the relationship vanishes. We conclude that the positive effect of merger laws on corporate value is driven by their deterring effect on horizontal, cross-border, anti-competitive mergers. To the extent that the trend towards globalization in the world has dramatically increased merger flows from some countries to others, we argue that there is a need for competition laws that make up for the pervasive effects of the global market on some countries. We also show that the European Merger Directive has had a negative impact on corporations value.