Regulation, renegotiation and capital structure: theory and evidence from Latin American transport concessions
We examine the capital structure of regulated infrastructure firms. We 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. We test the predictions of the model using an original panel dataset of 124 transport concessions in Brazil, Chile, Colombia and Peru over 1992–2011. For each concession we have data on the regulatory regime, annual financial performance and contract renegotiations. We begin by demonstrating that, although pervasive, contract renegotiations do not fundamentally alter the regulatory regime. Importantly, firms are not systematically able to renegotiate when in financial difficulty, implying that price cap contracts remain high-powered in practice. We use this result for our main empirical work, where we find broad support for our theoretical predictions: when the cost of debt increases, firms operating under high-powered regulation make proportionally larger reductions in leverage. Copyright Springer Science+Business Media New York 2014
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 45 (2014)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/industrial+organization/journal/11149/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tomas Serebrisky, 2011. "Airport Economics in Latin America and the Caribbean : Benchmarking, Regulation, and Pricing," World Bank Publications, The World Bank, number 2389, October.
- Dasgupta, Sudipto & Nanda, Vikram, 1993. "Bargaining and brinkmanship : Capital structure choice by regulated firms," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 475-497.
- Correa, Paulo & Melo, Marcus & Mueller, Bernardo & Pereira, Carlos, 2008. "Regulatory governance in Brazilian infrastructure industries," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(2), pages 202-216, May.
- 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, vol. 32(9), pages 1954-1969, September.
- de Jong, A. & Kabir, R. & Nguyen, T.T., 2007. "Capital Structure around the World: The Roles of Firm- and Country-Specific Determinants," ERIM Report Series Research in Management ERS-2007-058-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- 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.
- Murray Z. Frank & Vidhan K. Goyal, 2009. "Capital Structure Decisions: Which Factors Are Reliably Important?," Financial Management, Financial Management Association International, vol. 38(1), pages 1-37, 03.
- Frank, Murray Z. & Goyal, Vidhan K., 2009. "Capital Structure Decisions: Which Factors are Reliably Important?," MPRA Paper 22525, University Library of Munich, Germany.
- Ehrhardt, David & Irwin Timothy, 2004. "Avoiding customer and taxpayer bailouts in private infrastructure projects : Policy toward leverage, risk allocation, and bankruptcy," Policy Research Working Paper Series 3274, The World Bank.
- Klein, Michael, 2012. "Infrastructure policy : basic design options," Policy Research Working Paper Series 6274, The World Bank.
- Klein, Michael, 2012. "Infrastructure policy: Basic design options," Frankfurt School - Working Paper Series 185, Frankfurt School of Finance and Management.
- 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, October.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions," NBER Working Papers 12399, National Bureau of Economic Research, Inc.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions," Working Papers 937, Economic Growth Center, Yale University.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Renegotiation without Holdup: Anticipating Spending and Infrastructure Concessions," Documentos de Trabajo 221, Centro de Economía Aplicada, Universidad de Chile.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Renegotiation without Holdup: Anticipating Spending and Infrastructure Concessions," Cowles Foundation Discussion Papers 1567, Cowles Foundation for Research in Economics, Yale University.
- Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, 02.
- Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999. "Capital Structure in Developing Countries," Rotman School of Management - Finance 00-001, Rotman School of Management, University of Toronto.
- J. Luis Guasch & Jean-Jacques Laffont & Stéphane Straub, 2007. "Concessions of infrastructure in Latin America: Government-led renegotiation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1267-1294.
- Guasch, Jose Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2005. "Concessions of Infrastructure in Latin America: Goverment-Led Renegotiation," IDEI Working Papers 372, Institut d'Économie Industrielle (IDEI), Toulouse.
- J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2005. "Concessions of Infrastructure in Latin America: Government-led Renegotiation," ESE Discussion Papers 132, Edinburgh School of Economics, University of Edinburgh.
- Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Alexander, Ian & Mayer, Colin & Weeds, Helen, 1996. "Regulatory structure and risk and infrastructure firms : an international comparison," Policy Research Working Paper Series 1698, The World Bank.
- Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
- 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.
- Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2010. "The economics of infrastructure finance: Public-private partnerships versus public provision," Documentos de Trabajo 276, Centro de Economía Aplicada, Universidad de Chile.
- Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2010. "The economics of infrastructure finance: Public-Private Partnerships versus public provision," EIB Papers 2/2010, European Investment Bank, Economics Department.
- Bernardo Bortolotti & Carlo Cambini & Laura Rondi & Yossi Spiegel, 2011. "Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 517-564, 06.
- Bortolotti, Bernardo & Cambini, Carlo & Rondi, Laura & Spiegel, Yossi, 2008. "Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?," CEPR Discussion Papers 7100, C.E.P.R. Discussion Papers.
- Yescombe, E. R. & Yescombe, E. R., 2007. "Public-Private Partnerships," Elsevier Monographs, Elsevier, edition 1, number 9780750680547.
- Taggart, Robert A, Jr, 1981. "Rate-of-Return Regulation and Utility Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 36(2), pages 383-393, May.
- Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
- José M. Vassallo, 2006. "Traffic Risk Mitigation in Highway Concession Projects: The Experience of Chile," Journal of Transport Economics and Policy, University of Bath, vol. 40(3), pages 359-381, September.
- Benjamin C. Esty, 2004. "Why Study Large Projects? An Introduction to Research on Project Finance," European Financial Management, European Financial Management Association, vol. 10(2), pages 213-224.
- Gaggero, Alberto A., 2007. "Regulatory risk in the utilities industry: An empirical study of the English-speaking countries," Utilities Policy, Elsevier, vol. 15(3), pages 191-205, September.
- J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, October.
- Marian Moszoro, 2013. "Overcoming Opportunism in Public-Private Project Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(1), pages 89-96, 03. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:kap:regeco:v:45:y:2014:i:2:p:209-232. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.