nep-reg New Economics Papers
on Regulation
Issue of 2009‒04‒18
six papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Next Generation Access Networks: The Effects of Vertical Spillovers on Access and Innovation By Paula Sarmento; António Brandão
  2. Commercial Policy and Foreign Ownership By Ishikawa, Jota; Sugita, Yoichi; Zhao, Laixun
  3. Information Asymmetry, Information Precision, and the Cost of Capital By Richard A. Lambert; Christian Leuz; Robert E. Verrecchia
  4. Do Regulations Based on Credit Ratings Affect a Firm’s Cost of Capital? By Darren J. Kisgen; Philip E. Strahan
  5. Does Corporate Governance Matter in Competitive Industries? By Xavier Giroud; Holger M. Mueller
  6. Maintaining a safe environment for payment cards: Examining evolving threats posed by fraud By Susan Herbst-Murphy

  1. By: Paula Sarmento (CEF.UP, Faculdade de Economia, Universidade do Porto); António Brandão (CEF.UP, Faculdade de Economia, Universidade do Porto)
    Abstract: The model that we develop here considers that an upstream firm sells a vital input to downstream firms. There are vertical spillovers and two different regulatory policies of the input price: cost oriented regulation and no-regulation. We also admit two alternative market structures: vertical integration and vertical separation. With this setting we study the effects of the spillovers on foreclosure and on the investment of the upstream firm with and without access price regulation in the two market structures. We conclude that in this setting foreclosure is not a necessary outcome and that the investment of the upstream firm depends on the values of the spillovers of each firm. The increase of the investment with regulation is more likely with vertical separation but it can also happen with vertical integration although this is not a typical result.
    Keywords: access price regulation, vertical integration
    JEL: L51 L96
    Date: 2009–04
  2. By: Ishikawa, Jota; Sugita, Yoichi; Zhao, Laixun
    Abstract: To serve the domestic market, foreign multinationals often not only export there but also control local firms through FDI. This paper examines the effects of trade and industrial policies on prices, outputs, profits, and welfare when exports and FDI coexist. Specifically, we focus on the case in which a foreign firm has full control of a local firm through partial ownership. Cross-border ownership on the basis of both financial interests and corporate control leads to horizontal market-linkages through which tariffs and production subsidies may harm a locally-owned firm but benefit a foreign firm. Foreign ownership regulation benefits a locally-owned firm.
    Keywords: foreign direct investment, corporate control, tariffs, production subsidies, ownership regulation
    JEL: F12 F13 F23
    Date: 2008–11
  3. By: Richard A. Lambert; Christian Leuz; Robert E. Verrecchia
    Abstract: The consequences of information differences across investors in capital markets are still much debated. This paper examines the relation between information differences across investors and the cost of capital, and makes three points. First, in models of perfect competition, information differences across investors affect a firm’s cost of capital through investors’ average information precision, and not information asymmetry per se. Second, the average precision effect of information that is heterogeneously distributed across investors is unlikely to diversify away when there exist many firms whose cash flows covary. Thus, better disclosure can reduce a firm’s cost of capital. Third, the precision effect does not give rise to a separate information-risk factor. These points are important to empirical research in accounting and finance, as well as to regulators who debate future disclosure requirements and the consequences of prior requirements such as Regulation Fair Disclosure.
    JEL: G12 G14 G31 M41
    Date: 2009–04
  4. By: Darren J. Kisgen; Philip E. Strahan
    Abstract: In February 2003, the SEC officially certified a fourth credit rating agency, Dominion Bond Rating Service (“DBRSâ€), for use in bond investment regulations. After DBRS certification, bond yields change in the direction implied by the firm’s DBRS rating relative to its ratings from other certified rating agencies. A one notch better DBRS rating corresponds to a 39 basis point reduction in a firm’s debt cost of capital. The impact on yields is driven by cases where the DBRS rating is better than other ratings and is larger among bonds rated near the investment-grade cutoff. These findings indicate that ratings-based regulations on bond investment affect a firm’s cost of debt capital.
    JEL: G18 G2 G3
    Date: 2009–04
  5. By: Xavier Giroud; Holger M. Mueller
    Abstract: By reducing the threat of a hostile takeover, business combination (BC) laws weaken corporate governance and increase the opportunity for managerial slack. Consistent with the notion that competition mitigates managerial slack, we find that while firms in non-competitive industries experience a significant drop in operating performance after the laws' passage, firms in competitive industries experience no significant effect. When we examine which agency problem competition mitigates, we find evidence in support of a "quiet-life" hypothesis. Input costs, wages, and overhead costs all increase after the laws' passage, and only so in non-competitive industries. Similarly, when we conduct event studies around the dates of the first newspaper reports about the BC laws, we find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant stock price impact.
    JEL: G3
    Date: 2009–04
  6. By: Susan Herbst-Murphy
    Abstract: On April 23 and 24, 2008, the Payment Cards Center of the Federal Reserve Bank of Philadelphia and the Electronic Funds Transfer Association jointly hosted "Maintaining a Safe Environment for Payment Cards: Examining Evolving Threats Posed by Fraud." The conference included panels representing four key constituencies: issuers, consumers, merchants/acquirers, and networks. The panelists addressed the nature of payment card fraud in the 21st century. This paper summarizes the highlights from the presentations and the discussions that ensued.
    Keywords: Fraud ; Payment systems ; Credit cards ; Debit cards
    Date: 2009

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