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

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

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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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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  1. 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.
  2. 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.
  3. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  4. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, June.
  5. 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.
  6. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions," Working Papers 937, Economic Growth Center, Yale University.
  7. 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.
  8. 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.
  9. 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, June.
  10. 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.
  11. Taggart, Robert A, Jr, 1981. "Rate-of-Return Regulation and Utility Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 36(2), pages 383-93, May.
  12. Tomas Serebrisky, 2011. "Airport Economics in Latin America and the Caribbean : Benchmarking, Regulation, and Pricing," World Bank Publications, The World Bank, number 2389, June.
  13. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  14. 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.
  15. Marian Moszoro, 2013. "Overcoming Opportunism in Public-Private Project Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(1), pages 89-96, 03.
  16. Klein, Michael, 2012. "Infrastructure policy: Basic design options," Frankfurt School - Working Paper Series 185, Frankfurt School of Finance and Management.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
  21. 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.
  22. 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.
  23. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, 02.
  24. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
  25. 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.
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