Private Ordering in Chinese Antitrust

Posted by Social Science Research Network

Private Ordering in Chinese Antitrust

Angela Huyue Zhang (King’s College London)

Abstract:      This Article begins with an inquiry into why there is a rarity of private challenges of decisions made by the Chinese antitrust authorities. The legal approach to the study of administrative law, which has received most academic attention, has not been able to provide a satisfactory answer to this question. To resolve this puzzle, this Article draws attention to the factors beyond the law, particularly the reputation sanction that Chinese antitrust agencies can strategically inflict on firms under their investigations. Based on event study methodology, I identified significant abnormal stock returns in response to an antitrust agency’s proactive public disclosure of its investigation. As the regulator has the discretion in deciding whether and when to disclose its investigation, this gives it significant clout in influencing the stock performance of firms subject to its investigation. In addition, I hand-collected data from 860 news articles on three high-profile antitrust cases and identified an editorial slant that can further inflate the reputation damage to these firms. A close review of these news articles reveals that such bias stems not only from supply but also demand factors. This Article contributes to several strands of research, particularly on the use of reputation sanction in regulation, the role of media in legal enforcement, and the limits of law in resolving administrative disputes in China.