Competition Laws, Governance, and Firm Value
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.
We thank Stephen Haber, Terry Hendershott, and Luc Laeven for helpful discussions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.