nep-reg New Economics Papers
on Regulation
Issue of 2006‒10‒21
six papers chosen by
Christian Calmes
Universite du Quebec en Outaouais, Canada

  1. Investment Lilberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive By Norbäck, Pehr-Johan; Persson, Lars
  2. Pricing risky bank loans in the new Basel II environment By Hasan, Iftekhar; Zazzara, Cristiano
  3. Legislation, investor protection and financial growth By Rainio, Elina
  4. Assessing effects of price regulation in retail payment systems By Kemppainen , Kari
  5. Access regulation and cross-border mergers: Is international coordination beneficial? By Lommerud, Kjell Erik; Olsen, Trond E.; Straume, Odd Rune
  6. Technology and Labor Regulations By Alberto Alesina; Joseph Zeira

  1. By: Norbäck, Pehr-Johan (Research Institute of Industrial Economics); Persson, Lars (Research Institute of Industrial Economics)
    Abstract: Investment liberalizing countries are often concerned that cross-border mergers & acquisitions, in contrast to greenfield investments, might have an adverse effect on domestic firms and consumers. However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect, which imply that the acquisition price is significantly higher than the domestic seller's profits. Moreover, we show that for the acquisition to take place, the MNE must be sufficiently efficient when using the domestic assets, otherwise rivals will expand their business, thereby making the acquisition unprofitable. Consequently, restricting cross-border M&As may also hurt consumers.
    Keywords: Investment Liberalization; Mergers & Acquisitions; Development; Ownership
    JEL: F23 K21 L13 O12
    Date: 2006–06–13
  2. By: Hasan, Iftekhar (Rensselaer Polytechnic Institute and Bank of Finland); Zazzara, Cristiano (CAPITALIA Banking Group, University “Luiss-Guido Carli”, École Polytechnique Fédérale de Lausanne)
    Abstract: Recently, banking literature has had a quest for appropriate pricing of bank loans under the new Basel II rules and has been in pursuit of possible outcomes for undertaking such credit risk. In this paper, we propose a simplified formula to price bank’s corporate loans, aiming at making bank managers aware of the creation/destruction of shareholder value. We show that the mathematical treatability of the proposed formula and its easy feeding with internal and market inputs allow simple implementation by the final user.
    Keywords: Basel II; rating; pricing; exposure at default; EVA
    JEL: C63 G12 G21 G28
    Date: 2006–04–18
  3. By: Rainio, Elina (Bank of Finland Research)
    Abstract: According to recent law and finance research, legislation is essential to financial development. More effi-cient financial markets would be achieved by reforming the laws governing investor protection and cor-porate governance systems. The Companies Act has traditionally played a very important role in the Fin-nish regulation of firms and financial markets. Nevertheless, the concrete effects of the Finnish corporate law have never before been examined properly. The aim of this study is to investigate the effects of the previous extensive reform of the Companies Act in 1980. The reform improved both shareholder and creditor rights, but the level of creditor rights rose substantially higher than the level of shareholder rights measured by different indices. The impact on stock returns was assessed by examining how news reports on the reform affected returns during the 1970s. Only the most important news had a significant impact on the returns. Otherwise there were no big surprises in the reform process and the stock prices adjusted efficiently to the new information relating to the small and closed financial markets.
    Keywords: companies act; financial markets; investor protection; news; corporate governance
    JEL: G14 G32 G38
    Date: 2006–10–10
  4. By: Kemppainen , Kari (Bank of Finland Research)
    Abstract: This paper considers effects of price regulation in retail payment systems by applying the model of tele-communications competition by Laffont-Rey-Tirole (1998). In our two-country model world there is one retail payment network located in each country and markets are segmented à la Hotelling. We show that the optimal price under price regulation is the weighted average of pre-regulation domestic and cross-border prices where the degree of home-bias in making payments serves as the weight. Furthermore, we find that the general welfare effects of price regulation are ambiguous: gross social welfare is higher un-der price discrimination than under price regulation in the special case where costs of access to banking services (transportation costs) are high. However, there also exist cases where prohibitively high transac-tion costs make price discrimination to reduce total welfare. Finally, if transportation costs are reduced sufficiently, segmentation of payment markets is eliminated. Markets then become fully-served as in the original Laffont-Rey-Tirole model, suggesting that price discrimination would be beneficial for welfare.
    Keywords: payment systems; price regulation; retail payments
    JEL: D49 G28 L59
    Date: 2005–07–11
  5. By: Lommerud, Kjell Erik (Department of Economics, University of Bergen); Olsen, Trond E. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Straume, Odd Rune (Department of Economics, University of Bergen)
    Abstract: The international integration of regulated markets poses new challenges for regulatory policy. One question is the implications that the overall international regulatory regime will have for cross-border and/or domestic merger activity. In particular, do non-coordinated policies stimulate cross-border mergers that are overall inefficient, and is this then an argument for international coordination of such policies? The paper addresses this issue in a setting where firms must have access to a transportation network which is controlled by national regulators. The analysis reveals that while non-coordinated regulatory policies may induce cross-border mergers (by allowing the firms in question to play national regulators out against each other), this can nevertheless be overall welfare enhancing compared to market outcomes under coordinated regulation.
    Keywords: Access regulation; Endogenous merger; Policy coordination
    JEL: L13 L41 L50
    Date: 2005–11–30
  6. By: Alberto Alesina; Joseph Zeira
    Abstract: Many low skilled jobs have been substituted away for machines in Europe, or eliminated, much more so than in the US, while technological progress at the "top," i.e., at the high-tech sector, is faster in the US than in Europe. This paper suggests that the main difference between Europe and the US in this respect is their different labor market policies. European countries reduce wage flexibility and inequality through a host of labor market regulations, like binding minimum-wage laws, permanent unemployment subsidies, firing costs, etc. Such policies create incentives to develop and adopt labor-saving capital intensive technologies at the low end of the skill distribution. At the same time technical progress in the US is more skill biased than in Europe, since American skilled wages are higher.
    JEL: O3 O4
    Date: 2006–10

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