Changes In Regulatory Regime Research Articles

Impact of Fiis on Indian Economy

Since the beginning of liberalization in 1990s, FII flows to India have steadily grown in importance. From a near absence of FII inflows till 1992, today such inflows represent a dominant proportion of total flows. Positive fundamentals, gradual removal of structural barriers combined with fast growing markets have made India an attractive destination for foreign institutional investors. Funds flow from FIIs have crossed the record Rs 97,900 crore mark this year. The net purchase of Rs 97,955.50 crore ($21.42 billion ) is the higher ever investment by overseas firms in any single year in India . Today, FIIs are the key drivers of the Indian equity market and rising stakes in Indian companies. But, at the same time there is unease over the volatility in foreign institutional investment flows and its impact on the different segments of the economy. The increase in the volume of foreign institutional investment (FII) inflows in recent time has led to concerns regarding the volatility of these flows, threat of capital flight, its impact on the stock markets and influence of changes in regulatory regimes.. Globally strong consensus has emerged that the achievement of more dynamic economic growth requires a greater role of the foreign capital. There was a surge in foreign capital flows into India after 1992-93, because of drastic changes in India's policies. Since then Government of India have been relaxing capital control measures and taking large number of policy decisions towards the improvement of local financial infrastructure. Because of this, foreign capital has become an integral part of the development strategy of India. The main objective of the present study is to investigate the impact of FIIs on economic growth of Indian economy.

THE ROLE OF MODEL SPECIFICATION IN FINDING THE INFLUENCE OF OWNERSHIP AND REGULATORY REGIME ON UTILITY COST: THE CASE OF SWEDISH ELECTRICITY DISTRIBUTION

I. INTRODUCTION The restructuring of network industries during the last two decades has typically involved privatization of state- and municipally owned utilities and a change in regulatory regime from cost-of-service, or rate-of-return, regulation to incentive-based regulation. These re-regulatory initiatives have been encouraged by economic theories that predict that private suppliers and competition increase cost efficiency. (1) Such outcomes have in fact been observed in electricity and water distribution (Kumbhakar and Hjalmarsson 1998; Saal and Parker 2000). (2) Nevertheless, the restructuring seen in different countries varies from complete privatization of multiple utility services and a heavy reliance on cost incentives, in for example England and Wales, to no or only marginal adjustments, exemplified by the water, wastewater, and district heating sectors in Sweden. (3) The wide variety of adopted policies can be attributed to the empirical difficulty of establishing a unified view of how utility performance is affected by different ownership and regulatory arrangements. The mainstream predictions are questioned by, for example, Kwoka (2005a, 2005b) and Bhattacharyya et al. (1995), who suggest that publicly owned utilities are more cost efficient in electricity and water distribution, respectively, whereas others argue that ownership is only relevant in combination with other market and utility characteristics, such as type of regulation (Aroncena and Waddams Price 2002; Berg, Lin, and Tsaplin 2005) and utility size (Bhattacharyya et al. 1995). In terms of regulation, incentive models have been found to improve welfare (Estache and Rossi 2005) but Goto and Tsutsui (2008) find no effect of deregulatory initiatives in the U.S. electricity distribution, although the precise natures of the pre- and post-regulatory regimes are unclear in their case. (4) Aubert and Reynaud (2005) find that water utilities are more cost efficient under rate-of-return regulation than under price cap regulation. The authors attribute this outcome to the extensive access to information that supplements the particular rate-of-return regime they investigate. A tentative explanation to why conclusions vary is the specific conditions that prevail in each country and industry; however, the studies referred to above also suggest that ownership and regulation might not affect performance by themselves but rather through combinations with other factors. In addition, behavioral assumptions and model specifications vary, which can potentially inflate differences in empirical outcomes. Bhattacharyya et al. (1995), Berg, Lin, and Tsaplin (2005), Hattori, Jamasb, and Pollitt (2005), Aubert and Reynaud (2005), Pombo and Taborda (2006), and Goto and Tsutsui (2008) all use stochastic frontier (i.e., dual disturbance) specifications, whereas Kwoka (2005a, 2005b) and Saal and Parker (2000) use single disturbance specifications. The choice between dual and single disturbance specifications is related to the assumption of utility objective, because a frontier specification rests on an assumption of cost-minimization while a function through the average of the data assumes that utilities follow any arbitrary objective. If it can be assumed that utilities minimize costs, then frontier methods have superior economic properties because the presence of a frontier is consistent with the behavior of economic optimization with a departure from the frontier interpreted as a lack of ability and/or luck. However, the choice of utility objective is not straightforward and although a majority of the studies surveyed above apply frontier specifications, it has been claimed that a cost-minimizing assumption could be overly restrictive (Kwoka 2005a). It can nevertheless be argued that most incentive-based approaches encourage cost-minimization and they typically compose a double incentive structure to separately reward frontier reductions and penalize inefficiency. …

Financial Performance As It Relates To Pollution Control: An Empirical Analysis

This paper explores the firm-level characteristics that explain pollution emissions during 1988-1996. Differences in pollution approach between different types of firms provide an unique research setting to investigate how firms with favorable environmental reputations compare to firms with unfavorable environmental reputations regarding emissions what firm characteristics are related to environmental performance, and how firms respond to regulation changes. The paper is the first to use emissions information from a non-financial source to analyze differences between firms to changes in regulatory requirements. The results provide clear evidence that green firms behave markedly different, have different firm characteristics, and react to changes in regulatory regime in different ways than their non-green counterparts.

Regulatory Environment, Changing Incentives, and IPO Underpricing in the Korean Stock Market*

AbstractI examine the importance of price support regulation in explaining IPO underpricing in the Korean stock market from 2001 through 2007. In contrast to the US practice where price support is provided effectively at the cost of the issuing firms, the price support in Korea resulted in direct costs to the underwriters. I construct a simple model to capture this feature of the regulation where IPO prices are determined through the interaction of the maximizing behaviors of underwriters and issuers. In the model, three variables, namely, the expected post‐IPO price volatility, size of newly issued shares, and size of tradable shares, are specified to affect the opportunity costs of underpricing. When combined with the regulatory regime change in 2003, which lightened underwriters’ obligations towards price support, the model implies that the magnitudes of the relationships between the three variables and underpricing have decreased since 2003. I test the hypotheses and find supportive empirical results: the relationship of underpricing with the expected price volatility has changed from positive to insignificant; those with sizes of newly issued and tradable shares from insignificant to negative. The findings contrast with existing Korean studies that do not find any evidence that price support regulation decreased the opportunity cost of underpricing for underwriters. The results also illustrate a more general point that to fully understand underpricing in a given stock market, it is crucial to take into account the regulatory environment that systematically influences agents’ incentives to control or generate underpricing.

Foreign Institutional Investment in India

The increase in the volume of foreign institutional investment (FII) inflows in recent years has led to concerns regarding the volatility of these flows, threat of capital flight, its impact on the stock markets and influence of changes in regulatory regimes. The determinants and destinations of these flows and how are they influencing economic development in the country have also been debated. This paper examines the role of various factors relating to individual firm-level characteristics and macroeconomic-level conditions influencing FII investment. The regulatory environment of the host country has an important impact on FII inflows. As the pace of foreign investment began to accelerate, regulatory policies have changed to keep up with changed domestic scenarios. The paper also provides a review of these changes.

Does the Implementation of Responsibility Centers, Total Quality Management, and Physician Fee Programs Improve Hospital Efficiency?

This study evaluates whether the implementation of various types of hospital-physician integration strategies, such as the responsibility centers system, total quality management, and physician fee programs, enhance efficiency for Taiwan hospitals. Because hospitals in Taiwan are structurally similar to staff-model HMOs, the study has implications beyond Taiwan. The Data Envelopment Analysis model is applied to measure hospital efficiency. Hospital efficiency refers to the ability to produce more outputs (eg, ambulatory and emergency visits, inpatient days, and inpatient visits) with the same inputs (eg, physicians, nurses, ancillary labor, and hospital beds). The sample consists of 90 general hospitals in Taiwan from 1994 to 1996. In addition, multitobit regression analysis is used to simultaneously estimate the effects of the hospital-physician integration strategies and provide better control for the effect of other factors (eg, size, degree of competition, ownership structure, teaching status, and the change in regulatory regime) that may also affect hospital efficiency. When evaluating the hospital-physician integration strategies individually, hospitals that implemented the responsibility centers system, total quality management, and physician fee programs were more efficient than hospitals that did not. Controlling for other factors using the multitobit model, hospitals that implemented physician fee programs remained significantly more efficient than others. In addition, hospitals that implemented total quality management were more efficient when they had implemented the strategy for at least 2 years. Hospitals that implemented the responsibility centers system were more efficient but only when integrating the system with formal incentive schemes. Physician fee programs seem to provide the most direct and robust incentives to enhance hospital efficiency under a fee-for-service regime like that in Taiwan. Because of time-lagged effects, hospitals that implemented the total quality management programs were more efficient but only when the programs had been implemented for at least 2 years. The responsibility centers system can also be effective when the system was associated with formal incentive schemes. The results indicate the importance of having both the individual-based and team-based incentives in place. Finally, the hospital-physician integration strategies appear to be effective individually, but the results change significantly when they are evaluated simultaneously, together with other control variables, in the tobit model. This indicates the importance of investigating hospital-physician integration strategies as a portfolio instead of a single tool.

Railroad Revisionists Revisited: Stock Market Evidence from the Progressive Era

From 1910–1917, the Interstate Commerce Commission repeatedly refused to grant requested railroad rate increases despite rising input costs. An event study shows that several Commission decisions resulted in statistically significant and economically meaningful negative excess returns for railroad stocks. The change in regulatory regime signaled by the 1917 Nationalization of the railroads generated large positive excess returns, which strengthens the assessment that the preceding regime was unfavorable to the railroads. These findings challenge the “revisionist” view of regulatory history, and suggest the need for closer study of regulatory implementation and evolution, and not simply regulatory origins.

Optimal response to a shift in regulatory regime: The case of the US nuclear power industry

This paper studies the impact of the March 1979 Three Mile Island (TMI) accident on the regulation of nuclear power plants (NPPs) and its consequences for the operating behaviour and profitability of the US nuclear power industry. We treat the TMI accident as a ‘natural experiment’ that caused a sudden, unexpected, and permanent increase in the intensity of safety regulation by the US Nuclear Regulatory Commission (NRC) and a shift towards increased disallowances of operating costs by state and local public utility commissions (PUCs). We analyse the nuclear power industry's reaction to this shift in regulatory regime using detailed monthly data on NPP operations collected by the NRC. One of the industry's responses was to increase the planned durations between refuellings from 12 months in the pre-TMI period to 18 months in the post-TMI period. We estimate a simple dynamic programming (DP) model of NPP operations that shows how an operator optimally balances the potential increases in capacity utilization rates associated with longer operating cycles against the increased costs of unplanned and forced outages associated with longer cycles. Under the maintained hypothesis that NPP operators seek to maximize expected discounted profits, we use the NPP operating data to infer profit functions for NPPs in the pre- and post-TMI periods. The estimated profit functions reveal that utilities have been responsive to NRC regulation insofar as they impute a significantly higher cost to ‘imprudent’ operation of a reactor in the post-TMI period than in the pre-TMI period. The results show that utilities responded optimally to the change in regulatory regime since the DP model predicts that optimal planned operating cycles were approximately 12 months in the pre-TMI period and 18 months in the post-TMI period. We find that while NPPs appear safer in the post-TMI period (in terms of having a lower rate of forced outages), they are also substantially less profitable: over 90% of the expected discounted profits from continued operation of existing NPPs have been eliminated in the post-TMI period. However, since most of the investments in existing NPPs are already sunk and given the high costs of plant decommissioning, the DP model predicts that utilities will continue to operate NPPs rather than shut them down. Interestingly, we find that the hypothesis of expected discounted profit maximization provides a much better approximation to NPP operating behaviour in the post-TMI period than in the pre-TMI period.

Regulating the environment: Changing from constraint to gentle coercion

AbstractThis article examines the changes in regulatory practices which have taken place in Denmark over the last twenty years. Danish environmental policy has been subject to several rounds of regulatory reform, aimed at streamlining existing regulation and making it more effective. Several new policy instruments have in this process been added to the regulatory repertoire, increasing the flexibility of the regulatory system. The strategic approach to the development and implementation of environmental policy, adopted by the Danish government, marks a change of regulatory regime, i.e. a change in the way environmental problems are perceived and in the choice of instruments to remedy these problems. The article argues that this is the result of the regulatory learning processes, and that the emerging regulatory regime, based on cooperation, represents a different way of harnessing the market forces than traditionally advocated. The article concludes that this regulatory regime opens up for a more systemic approach to preventing pollution.