Share Valuation and Antitrust Intervention

I found this graph on the web, on top of an article dedicated to next weeks' MSFT ruling.  The paper is silent on the link between antitrust fines and MSFT's share price. Yet, the graph suggests to the reader a clear correlation of how the infliction of antitrust fines harms firms' stock valuation.

Here's my concern: the suggestive technique of placing stylized graphs besides papers without any explanation is entirely dishonest intellectualy. On cursory examination, what the above graph suggests is that the higher the legal antitrust fines, the lower the stock valuation, and vice-versa.

Now, take a closer look: this  correlation is only apparent . Between 2004 and 2006, where the amount of fines, diminished substantially, MSFT's share price maintained itself within an average range of $22-31. In fact, if you think about it, the MSFT's stock valuation was rather stable during that period.

Give it a thought: what - besides the infliction of antitrust fines - happened on the financial markets from 2000 to 2003(where the share price falls on the graph)? Clearly, the above graph is fallacious in terms of causality.

I am much more incline to trust well-documented scholarship when it comes to assessing the links between antitrust intervention and financial valuation. See here for an excellent paper by Langus and Motta, entitled “The effect of antitrust investigations and fines on the firm valuation”.

Comments

[Mel Marquis]

As an addendum to Dr Petit's astute remarks, please note that the paper by Langus and Motta has been revised somewhat. The 2007 version is available at the following link:

http://www.iue.it/Personal/Motta/Papers/FinesFebruary2007REV.pdf

[Nico]

Many thanks, Mel Marquis.

Nicolas