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Regulatory Independence, Ownership and Firm Value: The Role of Political Institutions

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  • Bernardo Bortolotti
  • Carlo Cambini
  • Laura Rondi

Abstract

We study the effect of the establishment of independent regulatory agencies on the market-to-book ratios of publicly traded European regulated firms observed from 1994 to 2005. We find that independent regulation in combination with residual State ownership positively affects the market value of regulated firms while high leverage increases the market value of privately controlled firms. The positive relationship between firm value and the government’s stake is particularly strong and significant in countries where political institutions do not constrain the power of the executive. We conclude that where the institutional foundations of regulatory commitment are weak, the government tends to affect the regulatory process in order to benefit State-owned firms.

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Bibliographic Info

Paper provided by European University Institute in its series RSCAS Working Papers with number 2011/43.

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Date of creation: 07 Jul 2011
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Handle: RePEc:rsc:rsceui:2011/43

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Keywords: regulatory independence; privatization; firm value; leverage; political institutions;

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