There are significant differences across regions. The market for corporate con-
trol is relatively active in the United States, Oceania, Central and South
America, and Western Europe, but it is relatively weak in Africa and Asia.
In the next section, we analyze to what extent MLs have contributed to such
an increase in the number of acquisitions within a country.
2.5 Domestic and cross-border mergers,
and merger laws
2.5.1 The effect of merger laws
To analyze the effect of MLs on the frequency of acquisitions we compare our meas-
ures of merger activity before and after the enactment of merger regulation in the
countries that have done so between 1990 and 2001. Providing results for the whole
sample is not sensible because we would be unable to capture the effect of the laws
themselves. The United States, for instance, enacted MLs in 1914; Argentina did it
in 2001. However, one cannot conclude that it is because of the laws that the merger
activity in the United States was larger than in Argentina in 1999.
We first restrict our analysis to 15 countries with observations pre- and post-
merger law enactment. This subsample includes 8 Western European countries
(Belgium, Denmark, Greece, Ireland, Netherlands, Norway, Sweden, and
Switzerland) that passed national MLs after the 1989 European Directive on
Mergers. It also includes 3 Latin American countries as well as South Africa,
Taiwan, Thailand, and Turkey. In Table 2.7, we compare the merger frequen-
cies around the year of enactment of merger laws. Note that we exclude the year
when the law is passed. On average, we find that merger frequency increases
from 8.6% to 12.6% after MLs are enacted. Especially significant are the
results for Mexico, where merger frequency increases by more than 10%. There
is no country where mergers are less frequent after MLs are put in place.
With respect to cross-border mergers, there are increases in all countries
except for Belgium (interestingly, Belgium has a merger law quality index of
3 from a maximum value of 4).
2.5.2 Cross-sectional evidence
We do not claim any causal relationship between laws and merger activity. The
results could be purely driven by an increasing trend in the market for corpo-
rate control in the last decade. Therefore, we go back to our original sample and
perform a panel regression with measures of merger frequency by industry in
each country, spanning the period 1990–2001.
There are several determinants of merger activity in an industry. In addition
to the industry characteristics, the market valuation of the industry, the eco-
nomic and financial development of the country, as well as institutional char-
acteristics are employed to study the number of mergers.
32 Corporate Governance and Regulatory Impact on Mergers and Acquisitions
The effect of merger laws on merger activity: international evidence 33
Table 2.7 Merger activity and merger laws
Effect of merger laws on the number of acquisitions. Only those countries with information available in the prelaw period are shown.
The number of acquisitions includes completed acquisitions in a given year, of companies domiciled in the corresponding country.
Number of acquisitions Number of acquisitions / Number of listed firms
Domestic Cross-border Domestic Cross-border
Country Before the After the Before the After the Before the After the Before the After the
enactment enactment enactment enactment enactment enactment enactment enactment
of merger of merger of merger of merger of merger of merger of merger of merger
laws laws laws laws laws laws laws laws
Argentina 10 16 8 13 17.42% 22.46% 12.22% 17.86%
Belgium 13 17 12 13 10.48% 10.48% 9.68% 7.83%
Denmark 10 29 6 21 4.81% 11.08% 2.79% 7.89%
Greece 0 6 0 1 0.00% 2.46% 0.00% 0.59%
Ireland 9 17 5 11 13.64% 19.80% 7.58% 12.09%
Mexico 2 17 2 11 4.29% 15.17% 4.29% 10.02%
Netherlands 27 64 23 50 13.19% 24.28% 11.23% 19.08%
Norway 10 29 5 15 10.72% 14.45% 4.97% 7.30%
South Africa 45 101 11 18 10.58% 17.00% 2.64% 2.86%
Sweden 29 58 14 30 19.56% 20.69% 9.56% 10.80%
Switzerland 13 25 9 20 6.46% 9.68% 4.31% 7.74%
Taiwan 1 7 1 4 0.76% 2.09% 0.76% 1.17%
Thailand 7 20 3 11 2.45% 7.18% 1.20% 4.00%
Turkey 1 4 0 3 0.75% 3.79% 0.41% 2.74%
Venezuela 0 2 0 1 9.44% 6.96%
TOTAL 175 413 98 222 8.59% 12.55% 4.81% 6.82%

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