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

42 Pages Posted: 21 Jun 2010

See all articles by Carlo Cambini

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Laura Rondi

Politecnico di Torino & Ceris/CNR

Date Written: June 21, 2010

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.

Keywords: Regulated Utilities, Investment, Capital Structure, Private and State Ownership, Regulatory Independence, Government’s Political Orientation

JEL Classification: G31, G32, L33, L51, L9

Suggested Citation

Cambini, Carlo and Rondi, Laura, Regulatory Independence and Political Interference: Evidence from EU Mixed-Ownership Utilities’ Investment and Debt (June 21, 2010). FEEM Working Paper No. 69.2010. Available at SSRN: https://ssrn.com/abstract=1627999 or http://dx.doi.org/10.2139/ssrn.1627999

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy
+390115647292 (Phone)
+390115647299 (Fax)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Laura Rondi (Contact Author)

Politecnico di Torino & Ceris/CNR ( email )

Department of Management
Corso Duca degli Abruzzi, 24
Torino, 10129
Italy
+39 011 5647232 (Phone)

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