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Regulation, renegotiation and capital structure : theory and evidence from Latin American transport concessions

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  • Moore, Alexander
  • Straub, Stephane
  • Dethier, Jean-Jacques

Abstract

The paper examines the capital structure of regulated infrastructure firms. The authors develop a model showing that leverage, the ratio of liabilities to assets, is lower under high-powered regulation and that firms operating under high-powered regulation make proportionally larger reductions in leverage when the cost of debt increases. They test the predictions of the model using an original panel dataset of 124 transport concessions in Brazil, Chile, Colombia and Peru over 1992-2011, finding broad support for our predictions.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6646.

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Date of creation: 01 Oct 2013
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Handle: RePEc:wbk:wbrwps:6646

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Keywords: Debt Markets; Emerging Markets; Bankruptcy and Resolution of Financial Distress; Banks&Banking Reform; Economic Theory&Research;

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  1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2010. "The economics of infrastructure finance: Public-private partnerships versus public provision," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 276, Centro de Economía Aplicada, Universidad de Chile.
  2. Frank, Murray Z. & Goyal, Vidhan K., 2009. "Capital Structure Decisions: Which Factors are Reliably Important?," MPRA Paper 22525, University Library of Munich, Germany.
  3. Gaggero, Alberto A., 2007. "Regulatory risk in the utilities industry: An empirical study of the English-speaking countries," Utilities Policy, Elsevier, Elsevier, vol. 15(3), pages 191-205, September.
  4. Paulo Correa & Carlos Pereira & Bernardo Mueller & Marcus Melo, 2006. "Regulatory Governance in Infrastructure Industries: Assessment and Measurement of Brazilian Regulators," World Bank Publications, The World Bank, number 7059, August.
  5. Klein, Michael, 2012. "Infrastructure policy: Basic design options," Frankfurt School - Working Paper Series 185, Frankfurt School of Finance and Management.
  6. Bortolotti, Bernardo & Cambini, Carlo & Rondi, Laura & Spiegel, Yossi, 2008. "Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7100, C.E.P.R. Discussion Papers.
  7. Guasch, Jose Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2005. "Concessions of Infrastructure in Latin America: Goverment-Led Renegotiation," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 372, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999. "Capital Structure in Developing Countries," Rotman School of Management - Finance, Rotman School of Management, University of Toronto 00-001, Rotman School of Management, University of Toronto.
  9. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
  10. Marian Moszoro, 2013. "Overcoming Opportunism in Public-Private Project Finance," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 25(1), pages 89-96, 03.
  11. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 39(3), pages 575-92, July.
  12. Yossef Spiegel & Daniel F. Spulber, 1994. "The Capital Structure of a Regulated Firm," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 424-440, Autumn.
  13. de Jong, Abe & Kabir, Rezaul & Nguyen, Thuy Thu, 2008. "Capital structure around the world: The roles of firm- and country-specific determinants," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(9), pages 1954-1969, September.
  14. Dasgupta, Sudipto & Nanda, Vikram, 1993. "Bargaining and brinkmanship : Capital structure choice by regulated firms," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 11(4), pages 475-497.
  15. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, August.
  16. Tomas Serebrisky, 2011. "Airport Economics in Latin America and the Caribbean : Benchmarking, Regulation, and Pricing," World Bank Publications, The World Bank, number 2389, August.
  17. José M. Vassallo, 2006. "Traffic Risk Mitigation in Highway Concession Projects: The Experience of Chile," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 40(3), pages 359-381, September.
  18. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  19. Taggart, Robert A, Jr, 1981. "Rate-of-Return Regulation and Utility Capital Structure Decisions," Journal of Finance, American Finance Association, American Finance Association, vol. 36(2), pages 383-93, May.
  20. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  21. Benjamin C. Esty, 2004. "Why Study Large Projects? An Introduction to Research on Project Finance," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 10(2), pages 213-224.
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