The effectiveness of European antitrust policy : evidence from the stock market

This paper analyzes the stock market response to antitrust investigation announcements and decisions to assess the effectiveness of European antitrust policy. We analyse a sample of 269 publicly traded companies involved in 118 antitrust cases over the period 1978 - 2004. We uncover significantly negative abnormal stock returns around the time of the dawnraid and around the final decision date. The average abnormal stock return is around -4.5 % for the dawnraid and close to -2 % for the final decision. These stock price reactions translate in to a decrease of almost 50 billion in the aggregate market value of the companies involved. These valuation effects can only to a limited extent be explained by fines and legal costs. Stock markets, it seems, anticipate a decrease in future profitability. We examine the relation between the stock price reaction and several case and company characteristics. We shed light on several policy issues, including the 1996 Leniency Notice. Overall, our results suggest that European antitrust policy has a profound impact on the value of the companies involved