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The Effect of EU Antitrust Investigations and Fines on a Firm’s Valuation

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  • Langus, Gregor
  • Motta, Massimo

Abstract

We estimate, using event study techniques, the impact of the main events in an antitrust investigation on a firm’s stock market value. A surprise inspection at the firm’s premises has a strong and statistically significant effect on the firm’s share price, with its cumulative average abnormal return being approximately -2%. Further, we find that a negative Decision by the European Commission results in a cumulative average abnormal return of about -3.3%. Overall, the fine accounts for a relatively small fraction of this loss in value. Finally, if the Court annuls or reduces the fine, this has a positive (+2%) effect on the firm’s valuation.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6176.

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Date of creation: Mar 2007
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Handle: RePEc:cpr:ceprdp:6176

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Related research

Keywords: antitrust; deterrence; event studies; fines;

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References

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  1. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
  2. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2002. "The Political Economy of European Merger Control: Evidence using Stock Market Data," CIG Working Papers FS IV 02-34, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, December.
  4. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  5. Bizjak, John M & Coles, Jeffrey L, 1995. "The Effect of Private Antitrust Litigation on the Stock-Market Valuation of the Firm," American Economic Review, American Economic Association, vol. 85(3), pages 436-61, June.
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Cited by:
  1. Mats Bergman, 2008. "Quis Custodiet Ipsos Custodes? or Measuring and Evaluating the Effectiveness of Competition Enforcement," De Economist, Springer, vol. 156(4), pages 387-409, December.

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