Busted! Now What? Effects of Cartel Enforcement on Firm Value and Corporate Policies

67 Pages Posted: 6 Sep 2016

See all articles by Ailin Dong

Ailin Dong

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Massimo Massa

INSEAD - Finance

Alminas Zaldokas

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: August 2016

Abstract

In a cross-country study we look at the staggered passage of national leniency laws over 1990-2012. We show that these laws lead to more convictions of cartels, and generally increase the costs of collusion by reducing the average gross margins of the affected firms. We further examine how changing costs of collusion shape firm boundaries and show that firms reorganize their activities by engaging in more horizontal acquisitions, both in the roles as the acquirer and the target. These acquisitions tend to be associated with higher announcement returns. We find little evidence of the increase in strategic alliances or greenfield investments.

Keywords: cartels, Collusion, firm boundaries, leniency laws, M&A

JEL Classification: D22, D43, G34, G38

Suggested Citation

Dong, Ailin and Massa, Massimo and Zaldokas, Alminas, Busted! Now What? Effects of Cartel Enforcement on Firm Value and Corporate Policies (August 2016). CEPR Discussion Paper No. DP11470. Available at SSRN: https://ssrn.com/abstract=2834807

Ailin Dong (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Alminas Zaldokas

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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