Are CEOs unable to learn? This surprising question deserves to be raised in the light of the declining pattern of cumulative abnormal returns observed in M&A programs. This paper shows that this pattern is the expected ex post empirical evidence for rational risk averse CEOs. Our theoretical argument is that from deal to deal, rational CEOs become more aggressive in the bidding process. They concede increasing fractions of expected synergies to the target shareholders in order to win the bidding game. For CEOs infected by hubris, the learning process should allow them to progressively correct over-optimism and overconfidence, if they survive.

Why do regulatory authorities scrutinize mergers and acquisitions? The authorities themselves claim to be combating monopoly power and protecting consumers, but the last two decades of empirical research has found little supporting evidence for such laudatory motives. An alternative is that M&A regulation is actually designed to protect privileged firms. In this paper, we provide a test of protectionism by studying whether European regulatory intervention is more likely when European firms are harmed by increased competition. Our findings are unambiguous: European regulation is protectionist. The results are robust to a variety of statistical difficulties, including endogeneity between investor valuations and regulatory actions.

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