Stock Market Reaction to Regulatory Action on Anticompetitive Practices in India

Abstract

This study examines the impact of regulatory action against anti-competitive practices on the stock market by using the event study method. Orders released by the Competition Commission of India are analysed. The mean cumulative abnormal return for the respondent firms is negative and statistically significant for orders taking up complaints for investigation, not statistically significant for orders dismissing complaints, and positive and statistically significant for orders upholding complaints. These results imply that the regulatory body is a credible information provider of the lawful nature of firms. The regulatory body should enhance investor awareness of its role as the enforcer of lawful competition and reduce environmental distortions that may alter the complementary deterrent effect of its orders. Studies of the impact of regulatory action against anti-competitive practices on investors are scarce, especially in emerging economies, and this study attempts to fill this void.