Regulatory Independence, Ownership and Firm Value: The Role of Political Institutions

Bernardo Bortolotti, Carlo Cambini and Laura Rondi

No 2011/43, RSCAS Working Papers from European University Institute

Abstract: We study the effect of the establishment of independent regulatory agencies on the market-to-book ratios of publicly traded European regulated firms observed from 1994 to 2005. We find that independent regulation in combination with residual State ownership positively affects the market value of regulated firms while high leverage increases the market value of privately controlled firms. The positive relationship between firm value and the government’s stake is particularly strong and significant in countries where political institutions do not constrain the power of the executive. We conclude that where the institutional foundations of regulatory commitment are weak, the government tends to affect the regulatory process in order to benefit State-owned firms.

Keywords: regulatory independence; privatization; firm value; leverage; political institutions (search for similar items in EconPapers)
Date: 2011-07-07
New Economics Papers: this item is included in nep-eur
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Citations: View citations in EconPapers (5)

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