Merger Waves Following Industry Deregulation

Deregulation is endogenous. It is preceded by poor industry performance and is predictable with performance variables. These results imply that merger activity following deregulation should be systematically related to poor pre-deregulation industry performance. Consistent with this hypothesis, I find that post-deregulation mergers serve a contractionary role. Bidders and targets in post-deregulation mergers are poor performers prior to the merger and operate with significant excess capacity. Consistent with the hypothesis that post-deregulation mergers represent a form of exit, the frequency of cash and bankruptcy mergers is significantly higher following deregulation and the offer premium is significantly lower.