Capture and Competition

47 Pages Posted: 25 Nov 2016

See all articles by Sudarshan Jayaraman

Sudarshan Jayaraman

University of Rochester - Simon Business School; Simon Business School, University of Rochester

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Karthik Ramanna

University of Oxford - Blavatnik School of Government

Date Written: November 21, 2016

Abstract

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

Jayaraman, Sudarshan and Jayaraman, Sudarshan and Kothari, S.P. and Ramanna, Karthik, Capture and Competition (November 21, 2016). Simon Business School Working Paper No. FR-16-13, Available at SSRN: https://ssrn.com/abstract=2874384 or http://dx.doi.org/10.2139/ssrn.2874384

Sudarshan Jayaraman

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

S.P. Kothari (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Karthik Ramanna

University of Oxford - Blavatnik School of Government ( email )

Radcliffe Observatory Quarter
Oxford, Oxfordshire OX2 6GG
United Kingdom

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