Regulation, Board Monitoring and Merger Performance: Evidence from Acquiring Banks in the US and Europe

The notion that e¤ective regulation and good corporate governance act as substitutes underlies most studies on the governance of \u85rms. In this paper, we examine whether it is true in the case of merging banks that the existence of an e¤ective regulatory regime is indeed associated with weak monitoring by shareholders. If regulation and governance are substitutes, the monitoring capabilities of the board of the bidding bank should be lower in the US (which has a relatively strict regulatory regime) than in Europe (a less strict regime). However, we \u85nd US bank boards are more e¤ective monitors of managerial discretion than European bank boards which indicates a complementary role between regulation and monitoring