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on Regulation |
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Issue of 2007‒01‒28
eight papers chosen by Christian Calmes Universite du Quebec en Outaouais, Canada |
| By: | Delfiner, Miguel; Pailhé, Cristina |
| Abstract: | This paper reviews the markets and regulatory framework for hybrid financial instruments, with special focus on the recent regulatory changes allowing banks in Argentina to hold these instruments as regulatory capital. These assets refer to a wide family of instruments which have the structure of bonds, but incorporate equity-like features such as interest deferral, profound subordination, and long dated tenor. In 1998 the Basel Committee on Banking Supervision established minimum requirements and limits for these instruments to be included in Tier 1 capital. As a consequence markets for hybrids expanded considerably, and they were admitted in Canada, the United States and various Asian and European countries. In the Latin-American region they were admitted in Brazil and Mexico, and as from 2006 also in Argentina. In addition, these securities are described from the viewpoint of investors, focusing on risk and related costs, which contributes to the understanding of the regulation that applies to them. |
| Keywords: | Hybrid instruments; regulatory capital; Basel Capital Accord |
| JEL: | G28 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1567&r=reg |
| By: | Antonio Nicolo’ (University of University of Padua, IFS and CEPR); Loriana Pelizzon (pelizzon@unive.it; Department of Economics, University Of Venice Ca’ Foscari) |
| Abstract: | How does bank capital regulation affect the design of credit derivative contracts? How does the opacity of the OTC credit derivative markets affect these contracts? In this paper we address these issues and characterize the optimal security design in several settings. We show that both the level of the banks' cost of capital and the opacity of the credit derivative markets do affect the form of the optimal separating contract and the level of the banks' profits. Moreover, our results suggest that the optimal contracts are largely dependent on bank regulation. More specifically, the introduction of Basel II may prevent the use of the equity tranche in CDO contracts as a signaling device. In addition, the presence of private credit derivative contracts would make the use of signaling contracts able to solve the adverse selection problem quite expensive. |
| Keywords: | Credit derivatives, Signalling contracts, Capital requirements |
| JEL: | G21 D82 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:58_06&r=reg |
| By: | Francesco Caselli; Nicola Gennaioli |
| Abstract: | We compare the economic consequences and political feasibility of reforms aimed at reducing barriers to entry (deregulation) and improving contractual enforcement (legal reform). Deregulation fosters entry, thereby increasing the number of firms (entrepreneurship) and the average quality of management (meritocracy). Legal reform also reduces financial constraints on entry, but in addition it facilitates transfers of control of incumbent firms, from untalented to talented managers. Since when incumbent firms are better run entry by new firms is less profitable, in general equilibrium legal reform may improve meritocracy at the expense of entrepreneurship. As a result, legal reform encounters less political opposition than deregulation, as it preserves incumbents' rents, while at the same time allowing the less efficient among them to transfer control and capture (part of) the resulting efficiency gains. Using this insight, we show that there may be dynamic complementarities in the reform path, whereby reformers can skillfully use legal reform in the short run to create a constituency supporting future deregulations. Generally speaking, our model suggests that "Coasian" reforms improving the scope of private contracting are likely to mobilize greater political support because -- rather than undermining the rents of incumbents -- they allow for an endogenous compensation of losers. Some preliminary empirical evidence supports the view that the market for control of incumbent firms plays an important role in an industry's response to legal reform. |
| JEL: | G34 O11 O16 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12833&r=reg |
| By: | Vahagn Movsesyan |
| Abstract: | In this paper, we examine the inconclusive debate on regulatory competition in the Europe. We demonstrate that the recent expansion in the EU company law has created archetypal underpinning for formation of regulatory competition: the ground-breaking “triptych” of the ECJ on Centros, Überseering, and Inspire Art, on the top of previously infamous cases, has paved a way to a regulatory arbitrage throughout the EU, and a petite migration of companies abroad is already an evidence. We elucidate that few European states are putting into practice some facilitation in company registration procedure, including a significant cut in the minimum capital requirements, aiming to keep up with foreign options. This is the very process called regulatory competition, though it is not for charters and not for re-incorporations, but for capital requirements and for start-ups. Our idea is that these actions are only some, but promising, first steps en route to expansion towards regulatory competition in Europe also for large companies and for their reincorporation options. Hitherto, we reject the existence of an “EU Delaware”, though we demonstrate that few EU and EEA Member States have potential to take the lead in forthcoming chartermongering activities and are preparing for that: we claim for the appearance of more then one “European Delawares” in Europe at least for the time being. The then competition result will largely depend on the further advancements in the EC programs on this field, and/or on another “spectacular crusade” of the ECJ in particular, be it a reality. Thus, it is still soon to conclude the competition and prize the winner, but considerable network externality effects that drive a path dependent evolution suggests that it is likely to see a state that will become the “basin of attraction” for most of the companies later on. As a focal point, in the EU it is implausible to see a regulatory competition without Brussels meddling down from the top, which affects such developments negatively, unfortunately. |
| Keywords: | Freedom of establishment, Regulatory arbitrage, Regulatory competition, Company law, (Re)incorporations, EU, EEA |
| Date: | 2006–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2006/30&r=reg |
| By: | Markus Poschke |
| Abstract: | This paper analyzes the effect of firing costs on aggregate productivity growth. For this purpose, a model of endogenous growth through selection and imitation is developed. It is consistent with recent evidence on firm dynamics and the contribution of firm entry and exit to aggregate productivity growth. In this model, growth arises endogenously via market selection among heterogeneous incumbent firms. It is sustained as entrants imitate the best incumbents. In this framework, besides inducing misallocation of labor and reducing entry, firing costs also discourage exit of low-productivity firms. This makes selection less severe and reduces growth. However, exempting exiting firms from firing costs speeds up the exit of inefficient firms and thereby growth, with little change in job turnover. These effects are stronger in sectors where firms face larger idiosyncratic shocks, as in services, fitting evidence that here, EU-US growth rate differences are largest. Introducing firing costs of one year’s wages in a benchmark economy calibrated to the US business (services) sector then leads to 0.1 (0.3) points lower growth. A brief empirical analysis of the impact of firing costs on the size of exiting firms supports the model’s conclusions. |
| Keywords: | endogenous growth theory, firm dynamics, labor market regulation, firing costs, entry and exit, firm selection |
| JEL: | E24 J63 J65 L11 L16 O40 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/35&r=reg |
| By: | John Cubbin (Department of Economics, City University, London); Jon Stern (Department of Economics, City University, London) |
| Abstract: | This paper assesses for 28 developing countries over the period 1980-2001 whether the existence of a regulatory law and higher quality regulatory governance are significantly associated with superior electricity outcomes. The analysis draws on theoretical and empirical work on the impact of independent central banks and of developing country telecommunications regulators. The empirical analysis concludes that, controlling for other relevant variables and allowing for country specific fixed effects, a regulatory law and higher quality governance is positively and significantly associated with higher per capita generation capacity levels and higher generation capacity utilisation rates. In addition, at least for three years or more, this positive regulatory impact appears to increase with experience. |
| Date: | 2005–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:0404&r=reg |
| By: | Takeshi Koyama; Stephen S. Golub |
| Abstract: | This paper provides a revised measure of regulatory restrictions on inward foreign direct investment (FDI)for OECD countries and extends the approach to 13 non-member countries. The methodology is largely similar to that adopted in the previous version of the OECD indicator and covers three broad categories of restrictions: limitations on foreign ownership, screening or notification procedures, and management and operational restrictions. The FDI restrictiveness indicator captures statutory deviations from "national treatment", i.e. discrimination against foreign investment. When combined with other factors having an influence on foreign investment decisions, it has proven to be a good predictor of countries’ inward FDI performance. <P>L’indice OCDE des restrictions réglementaires sur les investissements en provenance de l’étranger : Révisions et extension à plus de pays <BR>Ce document présente une mesure révisée des restrictions réglementaires envers les influx des investissements directs étrangers (IDE) pour les pays de l’OCDE et étend la mesure à 13 pays non-membres. L’approche est dans son ensemble similaire à celle adoptée lors de la version antérieure de l’indicateur de l’OCDE, et couvre essentiellement trois catégories de restrictions : les limites sur la part de firmes domestiques pouvant être détenues par le capital étranger, les procédures d’examen sélectif et de notification, et les restrictions concernant la gestion et les opérations des entreprises. L’indicateur de restrictions réglementaires mesure les déviations par rapport au "traitement national" c’est-à-dire les discriminations à l’encontre des investissements étrangers. Combiné à d’autres facteurs ayant une influence sur les décisions d’investissement à l’étranger, cet indicateur contribue à expliquer la performance des pays en matière d’influx des IDE. |
| Keywords: | foreign direct investment, FDI restrictions, investissement direct étranger, restrictions sur l'IDE, foreign ownership, contrôle étranger |
| JEL: | F21 F23 |
| Date: | 2006–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:525-en&r=reg |
| By: | David Drukker (StataCorp); Daniel Millimet (SMU) |
| Abstract: | After proposing a simple theoretical framework to illustrate the importance of third-country effects in empirical studies of the Pollution Haven Hypothesis, we test the model using state-level panel data on inbound US FDI and relative abatement costs. Our analysis reveals that while own state attributes rarely have statistically significant effects on own inbound FDI when aggregated over all manufacturing sectors, many neighboring state attributes do matter. Moreover, the theoretical model does well in explaining FDI in the chemical sector; we tend to find significant effects in the correct direction of variables designed to reflect market demand and production costs. Finally, we consistently find a negative impact of own environmental stringency on inbound FDI in the chemical sector; the impact of neighboring environmental stringency is also statistically significant, but the impact is negative on average, contrary to our initial expectations. Nonetheless, the fact that the impact of more stringent environmental regulations spillover across states indicates that future research into the validity of the PHH must account for spatial spillovers. |
| Keywords: | Foreign Direct Investment, Environmental Regulation, Spillovers, Spatial Econometrics |
| JEL: | C31 F21 Q52 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:703&r=reg |