Scale,scope, and regulation in the Texas gas transmission industry

This article describes and analyzes the Texas Railroad Commission's regulatory policies for the intrastate gas transmission industry, paying special attention to the impact of direct utility competition on scale and scope economies. Our econometric results suggest that most firms operate at substantial decreasing returns to scale, and the largest firms suffer the biggest diseconomies of scale. There are economies of scope between types of gas sales, but diseconomies of scope when a pipeline combines transportation with multiple categories of gas sales. These results suggest that the Texas Railroad Commission's liberal policies on entry and private contracting have not resulted in inefficient entry.     

Democracy,regulation and competition in emerging banking systems

This paper develops a political economy framework to analyse the relations among democracy, financial regulation and banking competition in the emerging banking systems of Central and Eastern Europe. We develop extensive new yearly non-structural indices of bank competition instead of concentration indices as in the previous literature that show its evolution over time with the level of democracy. In addition, we directly test for linkages between democracy, financial regulation and banking competition. Using an unbalanced panel data set over the period 1994–2016 for 617 banks, we show that more democratic countries with better regulatory framework lead to the enhancement of competition. We also find significant support for the core hypothesis that financial regulatory framework in a “partially” democratic environment is inadequate. Given that financial regulatory framework in a “partially” democratic environment can be inadequate we find a U-shaped relation in the sense that there is a threshold level of democracy beyond which banking systems in those countries are more competitive.     

Are banks public utilities? Evidence from Europe

The regulatory response to the global financial crisis has been to instal a myriad of new rules in order to improve bank capital and liquidity, as well as to reduce systemic risks through structural reform. All these new rules place a straightjacket around banker’s activities and inhibit their operational freedom. This new environment has made European banks look less like private free-wheeling profit-maximising firms and more like public utilities. The utility services banks provide to society means that they should be overseen even more heavily. This includes greater regulatory oversight of bank pricing, profitability and service provision.     

银行竞争与僵尸企业去杠杆

本文将银监会公布的金融许可证信息与中国工业企业数据库相匹配,考察了银行竞争对僵尸企业资本结构动态调整的影响机理。研究发现,银行竞争通过提高僵尸企业的融资成本显著加快了其资本结构调整速度,尤其是降杠杆的幅度。进一步研究表明,在货币政策宽松期,银行竞争对僵尸企业降杠杆的促进效果会更明显。此外,预算软约束小、外部融资依赖程度高、规模小的僵尸企业去杠杆的速度更快。本文立足于中国金融体系深化开放的现实情境,聚焦于僵尸企业这一特定主体的资本结构决策,为金融市场的竞争机制如何助力僵尸企业去杠杆提供了一定经验证据。     

Investment decisions and the soft budget constraint

This paper investigates the investment behaviour of a large panel of Hungarian firms in the period 1989–99, in order to assess the impact of institutional and regulatory changes on the efficiency of credit allocation. We find that the role of financial factors for investment decisions has changed significantly after the introduction of major financial reforms, and that firms were affected differently depending on their ownership type. Reforms have hardened the budget constraint of private domestic firms, particularly small ones, and reduced informational problems for foreign‐owned firms. State‐owned firms remained subject to a soft budget constraint. In particular, small state firms became more sensitive to financial conditions, whereas large state firms were unaffected and kept operating under a soft budget constraint.     

A fire sale without fire: An explanation of labor-intensive FDI in China

China's labor-intensive industries are characterized by low technology and high competition. The massive inflow of FDI in China's labor intensive industries is inconsistent with the conventional wisdom that FDI should be more prevalent in technology-intensive and low competition industries. To explain this puzzle, we offer a “fire sale” hypothesis: facing severe financial constraints, Chinese private firms give up their equity to form joint ventures with foreign firms in order to obtain financing. Using the garment industry as an example, we find that among domestic firms, the financial constraint index is highest for private firms and lowest for state-owned firms. We further estimate a probit model of joint-venture decisions by private firms. Our results suggest that those private firms with greater financial constraints are more likely to seek foreign joint ownership. The effect of financial constraints on joint venture decision is both statistically and economically significant.     

Does corporate social responsibility reduce financial distress risk?

This paper examines how corporate social responsibility (CSR) affects the level of financial distress risk (FDR). Using a sample of 1201 US-listed firms during 1991–2012, our results indicate that firms with higher CSR levels have lower FDR, suggesting that a better CSR performance makes firms more creditworthy and have better access to financing, which is rewarded with less financial defaults. This finding is robust to using alternative proxies of FDR, to controlling for potential endogeneity, and is mainly driven by the community, diversity, employee relations, and environmental dimensions of CSR. Moreover, this relationship is more prevalent in firms with strong governance mechanisms and high product market competition. It is also more exacerbated for less distressed firms and during non-crisis periods. Overall, our findings suggest that the adoption of CSR practices comes with less distress and default risks, likely leading to a more attractive corporate environment, better financial stability and more crisis-resilient economies.     

REGULATORY REFORM: LESSONS FOR NATURAL GAS PIPELINES

This article examines regulatory reform and some possible consequences of reform designed to increase the role that competition plays in the interstate natural gas pipeline industry. The analysis first provides a conceptual framework for viewing the "problem of natural monopoly" as a basis for regulation. It summarizes ways in which introducing competition for a market may be possible even if competition within a market is not possible–through competitive auctions, monopolistic competition, or contestability. The analysis then relates briefly to this framework the experiences of three U.S. industries that have undergone substantial reform during recent years–airlines, motor carriers, and railroads. Finally, it compares the natural gas pipeline industry with the others examined and suggests types of regulatory reform that might succeed–and those that might not succeed–in improving resource allocation.     

Microcredit market structure and financing obstacles for micro firms

Using rich survey data of micro firms in Eastern Europe and Central Asia, I analze the effect of recent changes in microcredit market structure on perceived financing obstacles. Controlling for country, time and firm characteristics, lower microcredit market concentration is associated with firms reporting financing as a more severe obstacle to their operations. This indicates that rising competition between microfinance institutions may have led to reduced financial access. The results are consistent with information‐based theoretical predictions that lenders with less market power have weaker incentives to invest in lending relationships with opaque firms and that greater competition aggravates borrower screening.     

Unemployment and Economic Integration for Developing Countries

While financial or trade integration between countries may increase the size of the market and aid the adoption of more advanced technologies, will it also increase the level of urban unemployment for a developing country? In this model, there is unemployment in the urban sector. Manufacturing firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Financial firms provide capital to manufacturing firms and they also engage in oligopolistic competition. We show that an increase in the wage rate in the manufacturing sector changes neither the level of technology nor the level of employment in the manufacturing sector. While financial or trade integration between developing countries leads manufacturing firms to adopt more advanced technologies, the level and rate of employment in the manufacturing sector will not deteriorate.     

Applying a third party access model for China’s gas pipeline network: an independent pipeline operator and congestion rent transfer

This paper investigates third party access regulatory issues in China’s natural gas industry. We study the development of China’s gas market-oriented reform and how third party access becomes a pressing issue in that context. This paper aims to report stakeholders’ benefit and distributional effects during a hypothetical third party access process. To that end, we apply an oligopolistic equilibrium model, based on the mixed complementarity problem, to China’s gas pipeline network. We compare two scenarios: a scenario without third party access and the other scenario where an independent pipeline operator optimizes flows. This latter scenario aims to guarantee that the maximum social benefit is achieved. In addition, the latter scenario transfers the congestion rent to former integrated gas companies to compensate their actual loss control of the pipeline operation, in order to minimize the adverse distributional effects for pipeline companies. The solution of the model indicates that operational separation is feasible with Pareto improvement in China’s context. Moreover, it merits particular attention from policy makers in China that pipeline capacity scarcity should be properly evaluated and managed.     

Government support and innovation for new energy firms in China

Government support plays an important role in the Chinese economy. New energy industries, which involve innovation-driven sources and environmental protection, are also supported by the government. This paper aims to study the effects of supply-side traditional government support on firms’ innovation and development. We propose a theoretical mechanism and study the innovation reaction of firms to government support in different situations. We further use propensity score matching to verify the results in the theoretical model and conduct a robustness analysis. Our main conclusions include the following. (1) In normal years, government support can promote only the innovation output of firms that have innovated; however, support cannot promote the innovation probability of firms that have not innovated. Government support can only enhance the intensive margin of innovation and cannot enhance the extensive margin of innovation with less competition. (2) In the situation of a bad economic environment and intense competition, firms’ innovation probability rises as government support increases. Therefore, the government should provide more R&D special subsidies and implement strict financial supervision to make support policies effective, especially in normal years.     

REGULATION AND RISK: A CROSS‐COUNTRY SURVEY OF REGULATED COMPANIES

This paper tests empirically whether regulation characterized by high incentives implies more risk to firms than regulation characterized by low incentives. Using a worldwide panel of 170 regulated companies operating in electricity, gas, water, telecommunication and transportation sectors during the period 1995–2004, I find that different regulatory regimes do not result in different levels of risk to their regulated firms. This result could be driven by a higher level of development of financial markets combined with a sophisticated diversifying behaviour of regulated firms.     

Institutional environment,ownership and firm taxation

This paper examines how ownership type and institutional environment affect firm taxation. Using a sample of Chinese‐listed firms from 1999 to 2006, we find that private firms enjoy a lower effective tax rate than local state‐owned enterprises. In addition, the preferential taxation of private firms is associated with local government incentives to promote local economic growth. We find that private firms located in regions with a lower level of privatization receive preferential tax treatment. Our results also suggest that decentralization and interjurisdictional competition lead to financial interdependence between local governments and private firms.     

Innovation under the Climate Wise program

This paper examines the impact of participation in the Climate Wise program, one of the largest voluntary programs enacted in the US, on innovative activity by firms. In operation from 1993 to 2000, the Climate Wise program was designed to reduce greenhouse gas emissions by promoting innovation in energy efficiency and energy related activities. We begin by examining what types of firms were most likely to participate in this voluntary initiative. We find that the Climate Wise program was attractive to large firms, more R&D intensive firms, and firms with more financial resources. To consider the impact of Climate Wise participation on the innovative behavior of firms, we investigate whether participants and non-participants differed in the number of successful environmental and non-environmental patent applications between 1993 and 2003. We find some evidence that participation in the Climate Wise leads to a change in environmental patenting but only among less R&D intensive firms.     

Renewable resource regulation and uncertain prices: The role of financial structure and bankruptcy

We analyze the interaction between regulatory policies and the financial structure of a fishery and show that firms with debts may respond differently to regulations than firms that have not accumulated debts. There are conditions where more stringent regulation is counterproductive, providing a perverse incentive to increase harvesting effort. We show that optimal regulation depends on the sector's financial structure, and demonstrate that there are cases when intervention is counterproductive, or too costly to implement. There are also cases where successful regulatory intervention can only be implemented when accompanied by a sufficiently large subsidy.     

高铁开通对企业创新的影响——基于上市公司微观数据的实证分析

基于微观经济理论的视角,本文考察了高铁开通对企业创新的影响.研究发现:高铁开通提高了企业的创新水平.进一步研究发现高铁开通主要通过减少信息不对称、缓解融资约束以及促进竞争三条途径促进创新.此外,高铁开通对非国有企业和交流密集型企业的创新影响更加显著.结合本文的研究结果,各级政府部门应该积极地改善企业创新的时空环境,提升...     

BANK COMPETITION AND FINANCIAL STABILITY: LIQUIDITY RISK PERSPECTIVE

We study whether competition affects banks' liquidity risk‐taking, which was at the heart of the 2008 financial crisis. We find that banks with greater market power take more liquidity risk, implying that decreased competition leads to financial fragility. During a financial crisis, however, the effect of market power on liquidity risk varies across bank size. Small banks with greater market power reduce liquidity risk while large banks with greater market power do not change their liquidity risk‐taking behavior. This suggests that enhanced charter values due to reduced competition lowers small banks' risk‐shifting incentives when their default risk significantly increases during a crisis. (JEL G21, G28)     

On the Optimality of the Competitive Process: Kimura's Theorem and Market Dynamics

This paper considers the optimality properties of a market economy in terms of three propositions that evaluate the outcomes of and the process of competition between a population of firms working within a given economic environment. We show that when firms differ in more than one competitive characteristic then competition does not select in general the most efficient firm nor does it always result in increases in the average efficiency with which resources are utilized. Drawing upon a theorem of Kimura, however, we show that competition has the property of maximizing the rate of change of the average selective characteristics in the population. We conclude that a more nuanced appraisal of the institutions of the competitive process is surely necessary. From an evolutionary standpoint, the outcomes of competition are always contingent on the nature of the selection environment and the characteristics of the whole population of firms that are being selected. This revised version was published online in July 2006 with corrections to the Cover Date.     

Market competition and firms' social performance

This paper investigates whether market competition encourages firms to be more socially responsible. We find that firms in more competitive markets exhibit better overall social performance, as measured by doing well (“strength”) and doing badly (“concern”) in areas such as community, environment, human rights, and treatment of employees. To deal with endogeneity, we instrument market competition on entry barrier and observe that market competition only significantly reduces social concerns but not increases social strengths. Thus, firms are more reactive in reducing social concerns than proactive in augmenting their social strengths. Amongst these concerns, firms appear to be more active in reducing environmental concerns. The paper underscores the limitations in relying on the “invisible hand” of the market to deal with the multi-dimensional challenges of firms’ social performance.