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Hilton Atlanta, Grand Ballroom C
American Finance Association
Policy and Regulatory Issues
Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM
- Chair: Deborah Lucas, Massachusetts Institute of Technology
The Hidden Costs of Being Public-Evidence from Multinational Firms Operating in Emerging Markets
AbstractThis paper studies how firms deal with business regulations that limit their operations. I first exploit a natural experiment to show that the ownership structure of a firm affects its degree of compliance with regulations, with publicly listed firms complying more than privately held ones. Then I show that this differential compliance imposes a burden on listed firms that helps explain the patterns of M&A activity in emerging markets. When the level of market regulations increases, private firms acquire listed ones, and when the level decreases the results are reversed. I find that this effect is stronger in industries more prone to bribery, suggesting that the ability to \grease the wheels" plays an important role reducing compliance costs. Taken together, these results uncover an additional cost faced by listed companies, identify a new driver of M&A transactions in emerging markets, and show evidence that high levels of regulation lead to opaque corporate structures.
Regulatory Integration of International Capital Markets
AbstractI examine the financial and real effects of regulatory integration of international capital markets using a unique policy plan by the European Union, which creates a common European market for financial services and capital, through, e.g., passporting rights. For identification, I exploit the bilateral and staggered nature of laws that are passed at the European level but are implemented by national governments. Over its implementation, regulatory integration leads to large increases in external financing, investment and employment for publicly listed firms. These results highlight the importance of regulatory integration of international capital markets for firms’ financing decisions and real outcomes.
How America Lost Its Competitive Edge: A Study of Institutional Drift
AbstractUntil the 1990’s, U.S. markets were more competitive than European markets. Today, European markets have lower concentration, lower excess profits, and lower barriers to entry. We document this surprising outcome and propose an explanation using a model of political support. Politicians care about welfare and about the profits of certain industries. We show that when politicians from different countries set up a common regulator, they deliberately make it more independent and more pro-competition than if the same politicians all lived in the same country. This explains why, even though they appear broadly similar, European institutions are often granted a higher degree of independence than American institutions. We find support for the predictions of the model. In Europe, countries with weak institutions benefited more from the delegation of antitrust enforcement to the EU level. Political and lobbying expenditures have increased more in America than in Europe, and using data across industries and across states, we show that these expenditures explain the relative rise of concentration and market power in the US.
University of Houston
University of Maryland
- G3 - Corporate Finance and Governance