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Article: Tuesday, 27 March 2018

Scrutiny by anti-trust authorities can introduce high costs and risks to a merger and acquisition attempt. PhD research by Eden Quxian Zhang of Rotterdam School of Management, Erasmus University (RSM) now shows that early lobbying could help firms to reduce the risk of being submitted to intensive in-depth reviews and being challenged by the antitrust agencies later. Shareholders also value the merger or acquisition more where acquiring firms spend more on lobbying, which leads to higher abnormal returns, she discovered.

To keep markets competitive and protect consumers, every merger and acquisition (M&A) needs to be reviewed and approved in advance by anti-trust authorities. According to Zhang, there are several ways this process introduces costs and risk to an M&A deal.

When officially challenged by the authorities, firms could be required to divest certain parts of the company, which could hurt the final business value of the M&A. When the intended deal is deemed unlawful and fails to materialise, companies may have to pay substantial termination fees.

In case of doubt, anti-trust authorities can decide to request extra documentation from the involved companies. Compiling this is not only a very labour and time-intensive process, it also prolongs the time that companies are left in uncertainty, which introduces indirect costs.

On average, merging firms that have had to deal with them in the merging process, can expect to see their stock returns upon receiving the Second Request decrease with 2,7 per cent.


To avoid all this, many companies engage in lobbying activities in the period before the M&A, and communicate with the authorities on its benefits and how it complies with the rules. In her study, Zhang and a team of researchers set out to find how these activities correlate with the outcomes of the review process.

To find out, she analysed 370 public merger deals that took place between 2008 and 2014 in the USA. She only included those transactions that involved more than US$ 100 million.

She discovered that a higher intensity of lobbying activity before announcement of the deal was correlated with a lower chance of request for additional information, the so-called ‘Second Request’, and being challenged. In technical terms: firms that spend one standard-deviation more than average on lobbying, saw their chance at receiving such a request and being challenged go down from 16,8 per cent to 9,2 per cent.Interestingly, lobbying only after the announcement of the merger seems to be triggered by a rough ride in the review process and does not significantly improve the chances of a successful deal, Zhang found.

Value implications

The results also showed that firms indeed have every reason to try to avoid the second requests. On average, merging firms that have had to deal with them in the merging process, can expect to see their stock returns upon receiving the Second Request decrease with 2,7 per cent. Zhang did not find this effect for companies that see their M&A approved without a hitch.

Acquiring firms that engage in pre-announcement lobbying were seen to have 1.3 per cent higher abnormal returns upon the announcement of the deal. The acquiring firm only benefits from this boost when it has a strong corporate governance, that let shareholders benefit from these rewards, the results also showed.


Zhang’s results beg the question: why does lobbying work? Does the extra information provided by lobbyists help the government agencies to assess upcoming mergers better? Or does lobbying sway them towards a more favourable assessment of the M&A activities?

Zhang says her results do not directly provide evidence that lobbying distorts the market conditions and makes it less competitive. This would imply that lobbying has the function to transfer useful information to help the regulators making policies. But, she also stresses that more research is necessary to fully support this and gain more understanding in the mechanics of corporate lobbying.

Prof. Peter Roosenboom

Professor of Entrepreneurial Finance and Private Equity

Rotterdam School of Management (RSM)

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Dr. Eden Quxian Zhang

Senior Lecturer, Banking & Finance

Monash University

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