Working Paper: NBER ID: w28908
Authors: Ross Levine; Chen Lin; Wensi Xie
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 laws; corporate valuations; competition laws; agency problems; governance
JEL Codes: G3; K21; K22; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stronger competition laws (L49) | Higher firm valuations (G32) |
| Stronger competition laws (L49) | Higher firm valuations (for firms with agency problems) (G32) |
| Stronger competition laws (L49) | Higher firm valuations (for firms with weaker investor protections) (G32) |
| Stronger competition laws (L49) | Higher firm valuations (for firms with lower governance quality) (G34) |
| Stronger competition laws (L49) | Higher firm valuations (for firms with higher opacity) (G32) |
| Stronger competition laws (L49) | Higher firm valuations (for firms with lower asset tangibility) (G32) |
| Stronger competition laws (L49) | Higher firm valuations (in less competitive industries) (L19) |