Competition Laws, Governance, and Firm Value

45 Pages Posted: 1 Jun 2021 Last revised: 23 Jun 2021

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School

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Date Written: May 31, 2021

Abstract

Do antitrust laws influence corporate valuations? We evaluate the relationship between firm value and laws limiting firms from engaging in anticompetitive agreements, abusing dominant positions, and conducting M&As that restrict competition. Using firm-level data from 99 countries over the 1990-2010 period, we discover that valuations rise after countries strengthen competition laws. The effects are larger among firms with more severe pre-existing agency problems: firms in countries with weaker investor protection laws, with weaker firm-specific governance provisions, and with greater opacity. The results suggest that antitrust laws that intensify competition exert a positive influence on valuations by reducing agency problems.

Keywords: Antitrust, Governance, Valuation, Law and Finance

JEL Classification: K21, L4, G3, K22

Suggested Citation

Levine, Ross Eric and Lin, Chen and Xie, Wensi, Competition Laws, Governance, and Firm Value (May 31, 2021). Available at SSRN: https://ssrn.com/abstract=3857739 or http://dx.doi.org/10.2139/ssrn.3857739

Ross Eric Levine

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Wensi Xie (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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