Wednesday, June 2, 2010
Posted by D. Daniel Sokol
Andrea Guenster, Maastricht University - Department of Organization & Strategy and Mathijs A. van Dijk, Erasmus University - Rotterdam School of Management measure The Impact of European Antitrust Policy: Evidence from the Stock Market.
ABSTRACT: We evaluate the impact of European antitrust policy by analyzing the stock market response to antitrust investigation announcements, infringement decisions, and appeals. We examine a sample of 253 companies involved in 118 European antitrust cases over the period 1974-2004. We uncover significantly negative stock price responses of almost -5% around the dawn raid and 2% around the final decision, and a significantly positive response of up to 4% around a successful appeal. These numbers correspond to a total market value loss of €24 billion around the raid and the decision, of which roughly 75% cannot be explained by fines and legal costs. The stock market thus anticipates a significant decrease in future profitability as a result of European antitrust action. We show that the strength of the market response depends on the magnitude of the fine, the duration of the infringement, media attention, and in particular the size of the firm. Small firms suffer more from an infringement decision by the European Commission than large firms. We discuss several key policy implications of our results.