Regulation, Renegotiation and Capital Structure : Theory and Evidence from Latin American Transport Concessions

The paper examines the capital structure of regulated infrastructure firms. The authors develop a model showing that leverage, the ratio of liabilities to assets, is lower under high-powered regulation and that firms operating under high-powered re...

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Bibliographic Details
Main Authors:	Moore, Alexander, Straub, Stéphane, Dethier, Jean-Jacques
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	AMOUNT OF DEBT BAILOUTS BANK POLICY BANKRUPT BANKRUPTCY BANKRUPTCY INCREASES BARRIER BENCHMARKING BOND BOND MARKET BOND MARKET CAPITALIZATION BOOK VALUES CAPITAL ASSET CAPITAL ASSET PRICING CAPITAL MARKETS CAPITAL RATIO CAPITAL STRUCTURE CAPITAL STRUCTURES CHAPTER 7 CLAIM CLAIMANTS CONCESSION CONCESSION CONTRACT CONCESSION CONTRACTS CONSUMER SURPLUS CONSUMERS CONTRACT RENEGOTIATIONS CORPORATE FINANCE CORPORATE TAX CORPORATE TAX RATE CORPORATE TAX RATES CORRUPTION COST OF DEBT COST OF EQUITY COUNTRY DUMMIES COUNTRY RISK CURRENT ASSETS DEBT DEBT HOLDERS DEPENDENT DEPOSIT DEPOSIT INTEREST DEPOSIT INTEREST RATE DEPOSIT RATE DEVELOPING COUNTRIES DEVELOPMENT BANK DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DIRECT PAYMENT DOMESTIC DEBT SECURITIES DUMMY VARIABLE EARNINGS BEFORE INTEREST ECONOMETRICS EIB EMERGING MARKET EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXISTING DEBT EXPOSURE EXTERNAL INVESTORS FINANCIAL CORPORATION FINANCIAL DATA FINANCIAL DEVELOPMENT FINANCIAL DIFFICULTY FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL MANAGEMENT FINANCIAL PERFORMANCE FINANCIAL STATEMENTS FINANCIERS GDP GDP DEFLATOR GOVERNMENT ACTION GOVERNMENT GUARANTEE GOVERNMENT GUARANTEES HIGHLY LEVERAGED FIRMS INCENTIVE STRUCTURE INCOME INCOME DISTRIBUTION INFLATION INFRASTRUCTURE CONCESSIONS INFRASTRUCTURE FINANCE INFRASTRUCTURE PROJECTS INSTITUTIONAL INVESTOR INSURANCE INTEREST RATE SPREAD INTERNAL RATE OF RETURN INTERNATIONAL BANK INTERNATIONAL FINANCIAL STATISTICS LEASE AGREEMENTS LEGISLATION LENDERS LENDING INTEREST RATE LEVEL OF DEBT LEVELS OF DEBT LEVERAGE LIQUIDITY LIQUIDITY PROBLEMS MARKET PORTFOLIO MARKET RISK MARKET VALUE MARKETS DATABASE MORAL HAZARD ORIGINAL CONTRACTS OUTPUT PAYOFF PAYOFFS POLITICAL RISK PORTFOLIO POTENTIAL INVESTORS PRICE CAP PRICE CAP REGULATION PRICE CAPS PRICE SETTING PRIVATE BOND PRIVATE CAPITAL PRIVATE DOMESTIC DEBT PRIVATE INFRASTRUCTURE PRIVATE INVESTORS PROBABILITY OF BANKRUPTCY PROCUREMENT PRODUCTIVITY PROFITABILITY PUBLIC-PRIVATE PARTNERSHIPS RATE OF RETURN REAL ASSETS REAL GDP REGULATOR REGULATORS REGULATORY AGENCIES REGULATORY AGENCY REGULATORY ENVIRONMENT REGULATORY GOVERNANCE REGULATORY REGIME REGULATORY REGIMES REGULATORY STRUCTURE RENEGOTIATION RENEGOTIATION PROCESS RESIDUAL CLAIMANTS RETURN RETURN ON ASSETS RETURNS RISK AVERSE RISK NEUTRAL ROAD TOLLS SAVINGS SHAREHOLDERS STOCK MARKET STOCK MARKETS TAX TAX ADVANTAGE OF DEBT TAX RATES THREAT OF BANKRUPTCY TRANSPORT VARIABLE RATE VOLATILITY WORKING CAPITAL WORLD DEVELOPMENT INDICATORS
Online Access:	http://documents.worldbank.org/curated/en/2013/10/18366114/regulation-renegotiation-capital-structure-theory-evidence-latin-american-transport-concessions http://hdl.handle.net/10986/16862

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Summary:	The paper examines the capital structure of regulated infrastructure firms. The authors develop a model showing that leverage, the ratio of liabilities to assets, is lower under high-powered regulation and that firms operating under high-powered regulation make proportionally larger reductions in leverage when the cost of debt increases. They test the predictions of the model using an original panel dataset of 124 transport concessions in Brazil, Chile, Colombia and Peru over 1992-2011, finding broad support for our predictions.

Regulation, Renegotiation and Capital Structure : Theory and Evidence from Latin American Transport Concessions

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