Do antitrust laws erode shareholder returns? Evidence from the Chinese market

Using data on 4784 completed mergers and acquisitions in China announced between 2002 and 2016, we find that the adoption of the Chinese Anti-Monopoly Law substantially reduces the shareholder returns for horizontal acquisitions. Based on our findings on reduced post-merger sales and returns, we argue that a loss of market power drives this negative relationship. We also find that the acquiring firms' cost efficiency does not significantly change as a result of the combination, suggesting that the decline in shareholders' wealth after horizontal mergers is not because of reduced cost efficiency. Furthermore, we conduct a series of robustness checks to examine how adopting antitrust law decreases the wealth of producing firms' shareholders. Overall, our results indicate that the government must implement stricter guidelines for antitrust policies to protect consumer welfare.