Capture and Competition
47 Pages Posted: 25 Nov 2016
Date Written: November 21, 2016
The lobbying literature provides evidence of firms shaping their regulatory context, consistent with corporate rent-seeking. We propose that such rent-seeking, where it exists, is unlikely to enrich shareholders at the expense of customers when firms operate in competitive product markets. We test this proposition through an assessment of the dissipation of the cash benefits accrued from corporate tax inversions. We find lower accounting and stock-market returns to shareholders of inverting firms in competitive industries (relative to those in concentrated industries). Further, inverting firms in competitive industries are more likely to improve liquidity and invest in R&D relative to those in concentrated industries. The evidence suggests that in competitive industries lobbying “rents” accrue to customers over shareholders.
Keywords: Regulatory Capture, Product Market Competition, Inversions
JEL Classification: D01, D22, H26, I18
Suggested Citation: Suggested Citation