Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?

We study the effect of ownership structure and regulatory independence on the interaction between capital structure and regulated prices using a comprehensive panel data of publicly traded European utilities. We find that firms in our sample tend to have a higher leverage if they are privately controlled and regulated by an independent regulatory agency. Moreover, the leverage of these firms has a positive and significant effect on their regulated prices, but not vice versa. Our results are consistent with the theory that privately controlled regulated firms use leverage strategically to obtain better regulatory outcomes.     

International financial remoteness and macroeconomic volatility

This paper shows that proximity to major international financial centers seems to reduce business cycle volatility. In particular, we show that countries that are farther from major locations of international financial activity systematically experience more volatile growth rates in both output and consumption, even after accounting for political institutions, trade, and other controls. Our results are relatively robust in the sense that more financially remote countries are more volatile, though the results are not always statistically significant. The comparative strength of this finding is in contrast to the more ambiguous evidence found in the literature.     

Reservations on the classical Laffer curve

Throughout the last two decades, some economists have objected to the conventional shape of one peak point on the Laffer curve. This paper examines the reservations presented in the literature and demonstrates the possibility of a Laffer curve with three peak points. Such a shape may be due to the three heterogeneous population groups of younger workers, adult males, and adult females. These groups respond differently to net wage rate changes, thus reducing the applicability of the changing of tax rates by policymakers.

     

Managerial overload and organization design

This paper considers a firm's choice between a “divisional structure” and a “functional structure.” It shows that an increase in the number of projects which the firm can adopt creates a managerial overload, which favors the divisional structure.     

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.     

Managerial Compensation and Capital Structure

We investigate the interaction between financial structure and managerial compensation and show that risky debt affects both the probability of managerial replacement and the manager's wage if he is retained by the firm. Our model yields a rich set of predictions, including the following: (i) The market values of equity and debt decrease if the manager is replaced; moreover, the expected cash flow affirms that retain their managers exceeds that affirms that replace their managers, (ii) Managers affirms with risky debt outstanding are promised lower severance payments (golden parachutes) than managers affirms that do not have risky debt. (Hi) Controlling for firm's size, the leverage, managerial compensation, and cash flow of firms that retain their managers are positively correlated, (iv) Controlling for the firm's size, the probability of managerial turnover and firm value are negatively correlated, (v) Managerial pay-performance sensitivity is positively correlated with leverage, expected compensation, and expected cash flows.     

The Role of Financial Development in Growth and Investment

Thisarticle decomposes the well-documented relationship between financialdevelopment and growth. We examine whether financial developmentaffects growth solely through its contribution to growth in ``primitives' or factor accumulation rates or whether it alsohas a positive impact on total factor productivity growth. Ourresults suggest that indicators of financial development arecorrelated with both total factor productivity growth and investment.However, the indicators that are correlated with total factorproductivity growth differ from those that encourage investment.In addition, many of the results are sensitive to the inclusionof country fixed effects, which may indicate that the financialdevelopment indicators are proxying for broader country characteristics.     

Portfolio Performance Manipulation and Manipulation-proof Performance Measures

Numerous measures have been proposed to gauge the performanceof active management. Unfortunately, these measures can be gamed.Our article shows that gaming can have a substantial impacton popular measures even in the presence of high transactionscosts. Our article shows there are conditions under which amanipulation-proof measure exists and fully characterizes it.This measure looks like the average of a power utility function,calculated over the return history. The case for using our alternativeranking metric is particularly compelling for hedge funds whoseuse of derivatives is unconstrained and whose managers' compensationitself induces a nonlinear payoff.     

Partial cross ownership and tacit collusion

We examine the effects that passive investments in rival firms have on the incentives of firms to engage in tacit collusion. In general, these incentives depend in a complex way on the entire partial cross ownership (PCO) structure in the industry. We establish necessary and sufficient conditions for PCO arrangements to facilitate tacit collusion and also examine how tacit collusion is affected when firms' controllers make direct passive investments in rival firms.