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 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. The magnitude of the stock market response depends on the fine, the duration of the infringement, and in particular the size of the firm and media attention. Small firms suffer more from an infringement decision than large firms. Greater newspaper coverage is associated with a more pronounced response, which suggests an important role for reputational effects.

Number of Pages in PDF File: 46

Keywords: Antitrust, Competition Policy, European Commission, Event Study

JEL Classification: L40, K21, G14

working papers series