Regulatory quality,financial integration and equity cost of capital

We study the impact of international financial integration on firm‐level equity cost of capital in the presence of regulatory differences. International financial integration reduces the domestic cost of capital in the presence of well‐defined regulations that make it easier for foreign firms to overcome information asymmetry. We study this relationship for 55 countries for the period 2002 to 2014. Using multilevel mixed estimations, we find a negative relationship between cost of capital and both financial openness and regulatory quality. However, economies with better regulatory quality have a positive relationship between financial openness and cost of capital. Our results inform policy on the cost of higher level of regulations on firms’ equity cost of capital, especially when an economy has a high level of financial openness.     

Idiosyncratic risk and the cost of capital: the case of electricity networks

We analyze the treatment and impact of idiosyncratic or firm-specific risk in regulation. Regulatory authorities regularly ignore firm-specific characteristics, such as size or asset ages, implying different risk exposure in incentive regulation. In contrast, it is common to apply only a single benchmark, the weighted average cost of capital, uniformly to all firms. This will lead to implicit discrimination. We combine models of firm-specific risk, liquidity management and regulatory rate setting to investigate impacts on capital costs. We focus on the example of the impact of component failures for electricity network operators. In a simulation model for Germany, we find that capital costs increase by \(\sim \) 0.2 to 3.0 % points depending on the size of the firm (in the range of 3–40 % of total cost of capital). Regulation of monopolistic bottlenecks should take these risks into account to avoid implicit discrimination.     

监管资本的适度性研究——基于我国上市银行的实证分析

既有文献大都研究银行资本监管的有效性,而对监管资本的适度性则关注不够.为此,文章提出了一种能体现银行实际风险水平的经济资本测度方法,它反映了银行应该持有的资本数量,通过对经济资本与监管资本(银行实际持有资本)的比较,能够判断商业银行监管资本的适度性.对我国14家上市银行的实证研究发现,我国上市银行虽然满足了法定最低监管资本要求,但总体来讲,监管资本仍不足以缓释银行的实际风险.     

Models of Capital Requirements in Static and Dynamic Settings

The aim of this paper is twofold. First, we generalize the notion of capital requirement, originally formulated in a regulatory framework, in order to unify other apparently diverse financial concepts. Second, we stress the interpretation of a capital requirement as a measure of risk, providing a link with the theory of coherent risk measures. We define a capital requirement as the minimal initial cost of a hedging action that makes the original position acceptable. Three basic elements are involved in such a methodology: a system of prices, a class of permitted hedging actions and a criterion of acceptability. Our approach is very general, because we construct capital requirements on vector spaces. However, we will give some concrete applications related, in particular, to the availability of a financial market, to the presence of different business units in an institution or to the fact that pay-offs are spread over different dates.     

Ex ante capital position,changes in the different components of regulatory capital and bank risk

We investigate the impact of changes in capital of European banks on their risk-taking behaviour from 1992 to 2006, a time period covering the Basel I capital requirements. We specifically focus on the initial level and type of regulatory capital banks hold. First, we assume that risk changes depend on banks’ ex ante regulatory capital position. Second, we consider the impact of an increase in each component of regulatory capital on banks’ risk changes. We find that, for highly capitalized, adequately capitalized and strongly undercapitalized banks, an increase in equity or in subordinated debt positively affects risk. Moderately undercapitalized banks tend to invest in less risky assets when their equity ratio increases but not when they improve their capital position by extending hybrid capital or subordinated debt. On the whole, our conclusions support the need to implement more explicit thresholds to classify European banks according to their capital ratios but also to clearly distinguish pure equity from hybrid and subordinated instruments.     

隐含资本成本估计方法的适用性问题——以中国上市公司为例

隐含资本成本对于金融投资决策和资产估值有着极为重要的意义,隐含资本成本的测算方法具有避免标准资产定价模型估计公司层面资本成本的误差问题、不依赖于传统资产定价模型的设定以及信息含量丰富等特点。本文梳理和比较了隐含资本成本的八类估计方法,并采用中国上市公司的数据进行了实际测度。单变量的相关性检验,支持OJN、GGM、CT三种方法对隐含资本成本估测的效果更好的判断;多元回归分析显示,GGM和CT两种方法的计量结果较为理想,能更准确地反映风险,并可作为预期收益的无偏估计。     

Capital requirements and business cycles with credit market imperfections

The business cycle effects of bank capital regulatory regimes are examined in a New Keynesian model with credit market imperfections and a cost channel of monetary policy. Bank capital increases incentives for banks to monitor borrowers, thereby raising the repayment probability, and excess capital generates benefits in terms of reduced regulatory scrutiny. Basel I- and Basel II-type regulatory regimes are defined, and the model is calibrated for a middle-income country. Simulations of a supply shock show that, depending on the elasticity that relates the repayment probability to the bank capital–loan ratio, the Basel II regime may be less procyclical than a Basel I regime.     

商业银行监管资本套利的动因、模式与影响研究

监管资本套利产生于巴塞尔协议资本监管框架的缺陷,作为巴塞尔协议一个未曾预料的结果,在西方发达国家发展非常迅速。本文回答了三个逐层递进的问题:商业银行是否会进行监管资本套利?商业银行如何进行监管资本套利?商业银行进行监管资本套利会给经济带来怎样的影响?最后依据结论的政策含义,向监管部门提出了相应的参考建议。     

Reconsidering bank capital regulation: a new combination of rules,regulators, and market discipline

Despite revisions to bank capital standards, fundamental shortcomings remain: the rules for setting capital requirements need to be simpler, and resolution should be an essential part of the capital requirement framework.We propose a revised system of capital regulation that addresses these needs by making changes to all three pillars of bank regulation: only common equity should be recognized as regulatory capital, and risk weighting of assets should be abandoned; capital requirements should be assigned on an institution-by-institution basis according to a regulatory (s, S) approach developed in the paper; a standard for prompt, corrective action is incorporated into the (s, S) approach.     

The Impact of Price Regulation on the Cost of Capital

This paper investigates how price regulation under moral hazard can affect a regulated firm's cost of capital. We consider stylized versions of the two most typical regulatory frameworks that have been applied in the most recent decades by regulators: Price Cap and Cost of Service. We show that there is a trade‐off between lower operational costs and a higher cost of capital under Price Cap regulation and higher operational costs and a lower cost of capital under Cost of Service regulation. As a result, when the extent of moral hazard is not significant, Price Cap regulation generates lower welfare than does Cost of Service regulation.     

Determinants of the systematic risk of electric utilities: theory and estimation

Investors' perceptions of the risk of holding the common stocks of electric utilities are analysed on the assumption that risk depends on the covariance of shareholder returns with the market. The analysis explicitly relates risk to the sales and cost structures, growth, and regulatory environment of each electric utility. The model accounts for the effects of regulatory lag during periods of cost inflation. The model is estimated using a pooled cross-section, time-series sample of 95 electric utilities for the period 1965 to 1977. Estimates indicate that sales,cost structure and growth dominate investors' assessment of the systematic risk of individual firms. Surprisingly, differences in regulatory treatment experienced by firms have a relatively small effect on perceived systematic risk.     

The capital structure and investment of regulated firms under alternative regulatory regimes

This paper explains how regulated firms choose their capital structure and examines the effects of this choice on investment and on regulated prices. It is shown that in equilibrium, firms have an optimal debt level and that given this debt level, the regulated price is set high enough to ensure that firms never become financially distressed. The analysis of the equilibrium yields testable hypotheses concerning the effects of changes in cost parameters and in the regulatory climate on the equilibrium investment level, capital structure, and regulated price. The analysis also shows that a regulatory restriction on the ability of the firm to issue securities may have an adverse effect on investment and consequently may harm consumers.     

信息披露、透明度与资本成本

信息披露对公司权益资本成本影响的研究对上市公司与监管机构都有着非常深刻的意义 ,然而披露水平与权益资本成本之间的联系往往并不明确 ,特别是在发展中国家。本文运用 2 0 0 2年前在上海证券交易所上市的 51 6家公司数据 ,检验了上市公司权益资本成本与其自愿披露水平的关系。在控制了公司规模与财务风险变量之后 ,本文结论显示 :上市公司信息披露水平的提高有助于降低公司的权益资本成本     

Management Behaviour in Vietnamese Commercial Banks

This study identifies managerial behaviour in Vietnamese banks between the years 2000 and 2014, based on the managerial framework of banks, as identified by Rossi et al. ( 2009 ). This framework is built on the interrelationships between efficiency, risk, capital and diversification. This study uses the Z‐score to measure insolvency risk, the SFA to estimate cost efficiency, the ratio of total equity to total assets to capture bank capital and the HHI index to measure the diversification of revenue and earning assets. The results from the 3SLS estimator indicate that revenue diversification has an insignificant impact on insolvency risk, capital ratio and cost efficiency, but earning assets diversification has a negative effect on these three variables, supporting ‘classical diversification’, ‘economic capital’ and ‘monitoring’ behaviours. Moreover, a decline in cost efficiency leads to a rise in insolvency risk, implying ‘bad management’ behaviour; an increase in risk results in a reduction in cost efficiency, indicating ‘bad luck’ behaviour; and a reduction in capital ratio in the poorly capitalised banks leads to a growth in risk, suggesting ‘moral hazard’ behaviour. The results remain strongly robust when using an alternative risk measurement (the loan loss provision ratio) and an alternative SFA model.     

中国上市公司股权融资偏好解析--偏好股权融资就是缘于融资成本低吗?

我国上市公司存在较为强烈的股权融资偏好 ,对此 ,理论界一般将其直接动因归结为股权融资成本偏低。然而 ,本文分析表明 ,融资成本因素并不能完全解释我国上市公司的股权融资偏好行为。为此 ,我们进一步采用Logit模型 ,从融资成本、破产风险、负债能力约束、代理成本和控制权等因素多角度考察了我国上市公司融资行为的影响因素。研究发现 ,企业资本规模和自由现金流越低 ,净资产收益率和控股股东持股比例越高 ,则企业越有可能选择股权融资方式。但本文研究未发现企业破产风险和成长性指标对企业融资决策有影响。同时 ,本文研究还发现 ,股权融资成本与上市公司股权融资概率正相关。本文最后基于上述发现提出了若干政策建议。     

Regulatory arbitrage and the FERC rate settlement process

We demonstrate that the Federal Energy Regulatory Commission’s (FERC) regulatory procedures for natural gas pipelines, specifically its rate-refund policy, induces regulatory arbitrage that leads to economic distortions. Specifically, we demonstrate that the rate refund policy causes pipelines effectively to “extort” ratepayers through the addition of economically inefficient capital investment, akin to “gold-plating” investments. We estimate the potential magnitude of this arbitrage impact on ratepayers to be between $400 and $700 million annually. Counterintuitively, however, we demonstrate that the presence of this arbitrage opportunity leads to underinvestment in pipeline capacity, thus negating one of the principal purposes of rate regulation. We further demonstrate that FERC could easily eliminate this regulatory arbitrage by setting the refund interest rate to the pipeline’s as-filed weighted average cost of capital.     

Discretionary managerial behaviour effects of savings and loan conversions: competitive implications for the industry in a deregulated environment

Under the Depository Institution Deregulation and Monetary Control Act of 1980 (DIDMC) regulatory obstructions that once limited portfolio imbricaion among financial intermediaries have been removed. The resulting brisk competition has caused financial intermediaries to restructure their portfolios altering traditional risk–return relationships. A corresponding need for capital restructuring is implied. If risk and capital structure are related, minimum equity financial intermediaries may find it necessary to adjust their capital structures as portfolio risk increases. The present research investigates the managerial behaviour implications for the thrift industry as it attempts to strengthen its capital structure with equity infusions from conversions.     

财务报告信息质量、风险与权益资本成本--来自我国沪深股市的经验证据

本文以我国沪深股市2007—2013年上市公司为研究对象,检验了财务报告质量、公司信息风险与权益资本成本之间的关系。研究结果表明,财务报告质量并不是投资者需要定价的系统风险因素,而是一种非系统性风险。尽管财务报告质量反映了信息风险的不确定性,但这种公司特定的信息风险并没有被投资者定价,它并不会提高公司的权益资本成本。     

A role for preferred stock in the financing decision of a public utility

Summary We have shown that preferred stock has a unique role in the financing of public utility capital expenditures, particulary when returns allowed by regulatory commissions are perceived to be inadequate. From the firm's perspective there is no tax advantage for debt because the commission effectively passes the tax savings through the consumers. If allowed returns on common stock are inadequate and the firm has exhausted its perceived debt capacity, then preferred stock becomes the optimal financing instrument. The regulatory commissions compute the costs of debt and preferred stock so that companies can expect returns to cover payments on debt and preferred stock if the assets being financed are necessary and will be included in the rate base. During extremely bad years when revenues are much less than expected, the companies can delay or miss preferred stock dividends without running the risk of default. The data on new capital sources for the electric and gas utilities indicate that these companies made adjustments which are consistent with the implications of our model, but they did not follow the extreme policy of using only debt and preferred stock when market-to-book ratios for common stock were below one. Regulators have, on occasions, used capital structures for rate-making that differ from actual capital structures, and a utility might be penalized for using an extreme capital structure policy. The main emphasis of regulatory review of capital structure, however, has been on the debt component. One strategy would be to use a debt level that satisfies the regulatory commission and then adjust equity between preferred stock and common stock to maximize value for common stockholders.     

控股股东股权质押会增加企业权益资本成本吗——基于中国上市公司的经验证据

本文以2003—2014年A股上市公司为研究样本,探讨了控股股东股权质押与权益资本成本之间的关系。本文研究发现,相较于不存在控股股东股权质押的上市公司,存在控股股东股权质押的上市公司的权益资本成本更高。进一步分析,本文发现股权质押引起的掏空行为发挥着中介作用,还发现控股股东股权质押与权益资本成本之间的正相关关系在股价崩盘风险较高、上证A股指数较低、熊市年度组、信息质量较低组更加明显,这表明控股股东股权质押与上市公司权益资本成本之间的正相关关系是由控股股东股权质押引起的掏空行为和控制权转移风险引起的。最后,本文发现有效的公司治理能够缓解控股股东股权质押与权益资本成本之间的正相关关系。本文的研究有助于进一步认识和了解控股股东股权质押可能产生的经济后果。