The impact of antitrust enforcement on peer firm innovation: An empirical analysis based on Chinese merger review

Antitrust laws in major jurisdictions around the world all reflect a focus on innovation issues. How antitrust enforcement affects innovation is a very important issue to study. This study uses the Staggered Difference-in-Differences (Staggered DID) method to assess the impact of antitrust enforcement in China’s merger review on the innovation level and quality of peer firms (firms were not reviewed in the case but affected by the merger and antitrust case in the industry). The findings indicate that the implementation of antitrust enforcement in merger review significantly enhances the innovation level and quality of peer firms. The mechanism test results indicate that antitrust review compresses profit margins, prompting peer firms to increase their innovation efforts, rely on long-term financing to support innovation. Besides, peer firms receive positive feedback from capital markets in terms of expected future growth. The heterogeneity analysis further indicates that the integration of enforcement agencies, together with the associated adaptation process and coordination costs, has reduced the efficiency of antitrust enforcement, thereby weakening its positive effect on innovation. The promotion effect of antitrust enforcement in merger cases on innovation level and innovation quality is particularly significant for firms in the manufacturing and high-tech industries. From the perspective of firm size, the enforcement events exert a more pronounced positive effect on the innovation level and quality of large enterprises.