Trading Off Stakeholder Interests: Evidence from Antitrust Investigations

We investigate how firms trade off the interests of different stakeholders when their industry comes under antitrust scrutiny. Using cartel cases opened by the European Commission between 1994 and 2019 in a difference-in-difference setup, we find that cartel investigations adversely affect the performance of firms in the affected industry, as compared to adjacent industries. In response to the shock, firms resort to restructuring strategies by increasing mass layoffs and (to a smaller extent) large-scale asset sales within three years after the investigation is opened. The increase in mass layoffs is partly mitigated for firms operating in countries with stronger employment protection regulations. We find no evidence that firms pass the burden of the shock onto shareholders through lower payouts. Our paper suggests that providers of labor, rather than capital, are paying the price for increased antitrust scrutiny after infringements of competition law.