Net Neutrality and Its' Repeal: Small Firms' Shareholders Shrug While Large Firms' Shareholders Turn

Abstract

The FCCs decision to repeal Net Neutrality governance of Internet traffic has not ended the debate over whether such protections are needed. This paper investigates the effects of changes in Net Neutrality regulation through an event study that unlike previous studies, employs as a baseline model, the Fama/French Three-Factor model to capture differences in rm size. The results are striking: for the most part, investors in both small and large firms are indifferent to changes in Net Neutrality rules. However, the selection of Chairman Pai is a signifi cant negative event for the group of largest rms. One explanation consistent with this finding is that the appointment of Pai gave a green light not only for Net Neutrality's repeal but also signalled that the FCC would take a favorable stance towards merger activity. Large firms in a given industry are more likely to operate as acquirers and therefore, more likely to realize losses in shareholder value.