The (Un)Intended Consequences of M&A Regulation

Economic (Bhagwat, Dam and Harford, 2016), political (Cao, Li and Liu, 2019), and policy (Nam and Hieu, 2017; Bonaime, Gulen and Ion, 2018) 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 regulatory uncertainty also matters. Our results support this conjecture. Using the Hoberg and Phillips (2010) similarity scores to identify product market competitors, we uncover a clear and significant DOJ/FTC intervention deterrence effect on future M&A transaction attempts. This deterrence effect is driven by the length of the investigation procedure, a principal factor that exacerbates regulatory uncertainty. Our results identify an (un)intended channel through which M&A regulation hampers efficient resources allocation.