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Regulatory Independence and Political Interference: Evidence from EU Mixed-Ownership Utilities’ Investment and Debt

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  • Cambini, Carlo
  • Rondi, Laura
Abstract
This paper examines the investment and financial decisions of a sample of 92 EU regulated utilities, taking into account key institutional features of EU public utilities, such as: a) regulation by agencies with various degrees of independence; b) partial ownership of the state in the regulated firm; and c) the government’s political orientation, which may ultimately influence the regulatory climate to be either more pro-firm or more pro-consumers. Our results show that regulatory independence matters for both investment and financial decisions. Investment increases under an Independent Regulatory Agency (IRA), while ownership has no effect. Leverage also increases when the IRA is in place, especially so if the regulated firm is privately controlled. Finally political orientation does matter, as firm investment increases under more conservative (pro-firm) governments, but this effect appears to revert when the IRA is in place.

Suggested Citation

  • Cambini, Carlo & Rondi, Laura, 2010. "Regulatory Independence and Political Interference: Evidence from EU Mixed-Ownership Utilities’ Investment and Debt," Institutions and Markets Papers 91002, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemim:91002
    DOI: 10.22004/ag.econ.91002
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    2. Spiller, Pablo T., 2013. "Transaction cost regulation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 232-242.
    3. Biggar, Darryl & Söderberg, Magnus, 2020. "Empirical analysis of how political ideology and ownership influence price stability in the Swedish district heating market," Energy Policy, Elsevier, vol. 145(C).
    4. Joanne Evans & Paul Levine & Neil Rickman & Francesc Trillas, 2011. "Delegation to Independent Regulators and the Ratchet Effect," School of Economics Discussion Papers 0911, School of Economics, University of Surrey.
    5. Magnus Söderberg & Makoto Tanaka, 2012. "Spatial price homogeneity as a mechanism to reduce the threat of regulatory intervention in locally monopolistic sectors," Working Papers hal-00659458, HAL.
    6. Spiegel, Yossi & Cambini, Carlo, 2011. "Investment and capital structure of partially private regulated firms," CEPR Discussion Papers 8508, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General

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