The Impact of EU Antitrust Enforcement on Stock Market Valuations: An Event Study Analysis After the 2006 Fining Guidelines

Abstract

This study examines the stock market impact of EU antitrust enforcement following the 2006 revisions to the EU fining guidelines. Based on an examination of 123 cases from the Official Journal of the European Union, I use an event study methodology to assess stock market reactions to dawn raids, formal investigation notices, and fine announcements. Results show significant negative abnormal returns for dawn raids (-2.13% CAAR) and fine announcements (-2.26% CAAR), while formal investigation notices have no significant effect. Investigating the role of fines in driving negative market returns, I find, somewhat surprisingly, that the relative size of fines does not seem to correlate with the magnitude of negative market reactions. Further analysis suggests that fines explain at most 19.28% of the total market value loss, implying that other factors, such as reputational damage, concerns about further regulation and cessation of illegal activities might be driving the majority of the losses in market value. These findings indicate the need to assess deterrence through both fines and market value losses for a more complete understanding of antitrust enforcement’s impact on publicly traded firms.