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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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  • Bernardo Bortolotti & Carlo Cambini & Laura Rondi, 2011. "Regulatory Independence, Ownership and Firm Value: The Role of Political Institutions," RSCAS Working Papers 2011/43, European University Institute.
    • Handle: RePEc:rsc:rsceui:2011/43
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    2. Stefano Clò & Matteo Ferraris & Massimo Florio, 2015. "Public Enterprises in a Global Perspective in the Last Decade," L'industria, Società editrice il Mulino, issue 1, pages 111-138.
    3. Stefano CLÒ & Chiara F. DEL BÒ & Matteo FERRARIS & Carlo FIORIO & Massimo FLORIO & Daniela VANDONE, 2014. "Publicization versus Privatization: Recent worldwide evidence," CIRIEC Working Papers 1403, CIRIEC - Université de Liège.
    4. Lampropoulou, Manto & Ladi, Stella, 2020. "The role and performance of independent regulatory agencies in post-crisis Greece," LSE Research Online Documents on Economics 103705, London School of Economics and Political Science, LSE Library.
    5. Manto Lampropoulou & Stella Ladi, 2020. "The Role and Performance of Independent Regulatory Agencies in Post-Crisis Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 145, Hellenic Observatory, LSE.

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