This paper tests Grossman and Hart (1980) hypothesis that antitrust laws such as the Williams Act of 1968 and the Hart–Scott–Rodino Act of 1976 dramatically reduced the impact of stock prices on mergers. Both the cointegrating and the casual relationship between mergers, stock prices, and industrial production are studied. First, our paper supports Nelson's findings that, while stock prices have impact on mergers, industrial production does not. However, the cointegration relation between stock prices and mergers is unstable. Second, causality testing indicates that the direction of causality has changed from two-way causation before the late 1960s to one way causation from the late 1960s onwards. In particular, stock prices no longer cause mergers after the late 1960s due to changes in antitrust laws. Hence, the evidence supports Grossman and Hart's hypothesis.
Journal of Industry Competition and Trade, 3, 27-40