The Impact of Merger-Related Regulations on the Shareholders of Acquiring Firms

Abstract

In this paper we examine the economic impact of a group of mergerrelated regulatory changes in the securities laws, the tax code, disclosure rules, and accounting principles which occurred during 1966-70. The specific regulations we consider are the Williams Amendments to the securities laws, the 1969 Tax Reform Act, Accounting Principles Board (APB) Opinions 16 and 17, and the SEC's segment disclosure rules. The impact of these changes is estimated by examining rates of to shareholders of firms that were engaged in acquisitions programs during the period of regulatory change. A widely used procedure for estimating the economic impact of events such as regulatory changes is the aggregation of security residuals from a fair return model such as the market model or CAPM.1 We take an alternative approach which conditions the return-generating process on the presence of regulatory change and employs generalized least squares (GLS) estimation. This approach provides a framework for testing a wide range of hypotheses and offers several advantages in making efficient use of available data. The concern with efficiency arises from three characteristics typically associated with policy event studies:

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