STATA代写| Applied Research Project

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Guidelines for the Applied Research Project 

Practical Information 

Deadlines and meetings 

1. Today’s meeting: instructions, Q&A 

2. Mid July Meeting: questions and feedback (date TBA) 

3. Final feedback (Week 8-12 August): 

^I By 8 August: you prepare about 4 slides with your preliminary content and present them in 10 minutes (a Zoom call, date TBA). I will give you feedback. 

4. 1 September 2022: you submit. 

Rules of the game: 

^I Individual work, not a group project. 

^I Independent work: all feedback will be provided during our next two contact points. Therefore, come prepared with questions. 

^I I will share a Dropbox folder with data and papers. 

^I Be mindful of plagiarism regulation: the software Turnitin automatically spots all forms of plagiarism.

Competition Policy and Corporate Performance The topic of your ARP 

Firms’ profitability and performance are largely aected by the regulatory environment, in particular by competition policy/antitrust. 

What is competition policy/antitrust? 

Competition policy is “the set of policies and laws which ensure that competition in the marketplace is not restricted in such a way as to reduce economic welfare.” (M. Motta, Competition Policy, Cambridge University Press, 2004) 

Main features of competition policy in the EU 

^I Regulation of Vertical and Horizontal Agreements between firms, e.g. price-fixing cartels (Article 81 of the EC Treaty) 

^I Regulation of Abuse of Dominance (Article 82 of the EC Treaty) ^I Merger Regulation

Competition Policy and Corporate Outcomes 

Competition policy has two eects on firms: 

1. Investigated firms are fined by antitrust authorities, if found guilty. Fines have grown much during the past 20 years. 

2. Anticompetitive measures (e.g. price-fixing cartels) keep prices artificially high, thus boosting firm profits æ antitrust action, by re-introducing competition, may reduce firm profitability and valuations. 

This ARP: 

Study the eect of cartel investigations on companies’ stock market valuation

Cartel Investigations 

What is a cartel? 

^I “A cartel is a voluntary association of legally independent firms that aims to raise their joint profits through explicit agreements” (Connor 2020). 

^I In a “hard core cartel” the colluding firms explicitly agree to control market prices and/or restrict industry supply. 

How do cartel investigations work in the EU? 

^I The Directorate General for Competition (DG-COMP) at the European Commission acts as the EU antitrust authority. 

^I Both Aguzzoni, Langus & Motta (2013) and Bos, Letterie & Scherl (2019) have nice descriptions of the events timeline in DG-COMP cartel investigations.

Literature 

You will contribute to a recent research agenda in Corporate Finance 

^I Anti-cartel laws and cartel investigations aect eciency (Gunster, Carree & Van Dijk 2011), capital structure (Dasgupta & Zaldokas 2019), and mergers and acquisitions (Dong, Massa & Zaldokas 2019). 

^I EU antitrust investigations (against price-fixing cartels and firms abusing market dominance) negatively aected the investigated firms’ stock prices (Aguzzoni, Langus & Motta 2013, and Bos, Letterie & Scherl 2019). 

^I Cartel investigations reduce operating performance for all firms in the industries under investigation, and lead aected firms to engage in mass layos (Cestone, Li, Volpin 2022).

This Applied Research Project 

The eect of cartel investigations on company valuation 

Research Questions: 

^I Do cartel investigations aect firms’ share prices? 

^I Is there an impact for firms that are directly under investigation by antitrust authorities? 

^I Is there an impact on the stock price of other listed firms in the investigated industry? 

^I When do share prices react? When a surprise investigation (Dawn Raid) is announced or when the Antitrust Authority makes a decision? Is there an anticipation eect (eg, due to rumours)? 

^I Is the reaction stronger in some industries? 

Focus on: 

List of EU cartel investigations in Cestone, Li, Volpin (2022), working separately on (listed) investigated firms and firms in their same industry.

Objective 

To analyse the stock price reaction in a window around the event date. 

Method: Event Study 

^I You will have to perform an event study on the stock returns of the firms aected (or a subset of those firms) 

^I Replicate the event study in Aguzzoni, Langus, Motta (2013) ^I You can choose to use their same event window and pre-event estimation window, or play a little bit with the dates 

^I Replicate Tables 2 and 3 in that paper 

^I Bos, Letterie & Scherl (2019) is a similar event study for reference 

^I For further guidance on the event study methodology see Kothari & Warner (2007); other resources from your Stats/Econometrics module syllabus will also do. 

^I For a very useful Stata tutorial Click Here

Data Sources 

We will share with you: 

1. The list of cartel investigations (the “events”) between 1991 and 2019, as in Cestone, Li, Volpin (2022) (cartel data.xlsx). 

2. Firms’ unique identification code for (i) the investigated firms (investigated_firms.dta); (ii) the other firms in the investigated firms’ industries (other_firms.dta). 

You will have to: 

1. Find data on stock prices of the treated firms in sets (i) and (ii) above. Stock price data for firms & markets can be extracted from Compustat Global/Eikon Datastream. 

2. Find out the “event date” for each investigation (may be dierent from the one on the event data files). 

^I Ideally, event date = date of the Dawn Raid (unannounced inspection): this information is available on the EC website, usually in the earliest press release: Click Here,

Literature 

1. Start reading the papers I cite in these slides (I am sharing some of them in the ARP 2022 Dropbox directory) 

2. You may cite other papers related to your research questions that you can find by (i) searching keywords in Google Scholar; (ii) look up some of the citations in the papers I am sharing with you. 

^I Remember, if you want to read more academic papers, try to focus on top academic journals¹ 

^I Focus on about 10-12 papers. 

3. Other source of information is the Financial Times (accessible to Bayes students). 

¹This includes, among others: American Economic Review, Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Management Science.

Steps to do your research and write your paper 

1. Read the research papers ASAP æ what you will learn from the papers will give you a framework to approach the topic 

=∆ Then write your literature review section. 

2. Familiarise yourself with the data sources; download the price data; find the “unannounced investigation” date. 

3. Revise the concept of Cumulative Abnormal Returns and revise the event study methods. Write up methodology section. 

4. Perform your event study, prepare the tables and write up the results section. 

5. Write up Introduction and Conclusion. The latter sums up main results and lessons to be learnt for practitioners and policy makers. Also, connect back to the literature.

Your choice of content/approach 

I will leave you the choice whether you want to go broad or deep (both have merits). You may want to: 

^I focus on one or more research questions 

^I focus only on one investigated industry, but be very picky about details such as finding out the correct date of the event (e.g., by also searching the press, e.g. Financial Times) 

^I focus on a subset of the investigated industries because you believe info is more reliable and they present with similar cartel cases

Questions?

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