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Competition Law Reform And Firm Performance: Evidence From Developing Countries, Incheol Kim, Suin Lee, Bina Sharma

Finance Faculty Publications and Presentations

We examine the effects of competition laws on firm performance in East Asian countries that have enacted antitrust legislation in the last three decades. Exploiting the staggered changes of these laws as quasi-exogenous shocks, we find that strengthened competition laws improve firm performance. Treated firms increase R&D investments and efficiency in inventory and asset management, while free cash flow decreases after reforms. Also, the effect of competition laws on firm performance is stronger with weaker corporate governance. Our findings indicate that government intervention promoting competitive market environments could benefit corporate owners in emerging markets where corporate governance is often substandard.