Narrow Results

A cooperative game with transferable utility (TU game) captures a situation in which players can achieve certain payoffs by cooperating. We assume that the players are part of a hierarchy. In the literature, this invokes the assumption that subordinates cannot cooperate without the permission of their superiors. Instead, we assume that superiors can force their subordinates to cooperate. We show how both notions correspond to each other by means of dual TU games. This way, we capture the idea that a superiors’ ability to enforce cooperation can be seen as the ability to neutralize her subordinate’s threat to abstain from cooperation. Moreover, we introduce the coercion value for games with a hierarchy and provide characterizations thereof that reveal the similarity to the permission value.

Synopsis

The research problem

We investigate whether cross-listing in the United States is associated with a reduction in disclosure deficiencies about related party transactions (RPTs) related to the legal traditions of firms’ countries of origin.

Motivation

The extant literature shows that there is a disclosure disparity associated to the firms’ legal origin (civil or common law) and the countries’ institutions (regulation, enforcement, and market scrutiny). The literature has not examined whether cross-listing in the United States mitigates (or eliminates) the disclosure gap for firms from civil law countries and countries with worse institutions. We focus on RPTs because the US Securities and Exchange Commission has put particular emphasis on regulation of this type of disclosure.

Hypotheses

H₁: Among domestically listed firms, those from countries with common law tradition present superior level of RPT disclosure than firms from countries with a civil law tradition.

H₂: Cross-listed firms have a superior level of RPT disclosure compared to domestically listed firms from the same country.

H₃: Among cross-listed firms, those from countries with common law tradition present a superior level of RPT disclosure than firms from countries with a civil law tradition.

Target population

Firms from countries that have adopted international financial reporting standards (IFRS). We sample firms from the G20 countries that have adopted IFRS because of their representativeness in the world economy.

Adopted methodology

Ordinary least squares (OLS) regressions with firm and industry-year fixed effects. Two-stage least squares (instrumental variables) regressions to tackle endogeneity issues.

Analyses

We manually collected data from the financial reports of 531 firms from the G20 countries that have adopted IFRS to compute indices of compliance with disclosures required by IAS 24. We performed double-difference regressions, comparing firms across their legal origin (common law versus civil law), and cross-listing status (cross-listed in the United States versus domestically listed only). In addition, we studied the institutional channels that drive the disclosure gap between common and civil law firms.

Findings

For domestically listed firms, we found that firms from the common law tradition have RPT disclosure levels superior to those of firms from the civil law tradition. We found that the level of RPT disclosure is associated with countries’ regulatory quality, rule of law, and control of corruption. However, we did not find any differences in the level of RPT disclosure among firms cross-listed in the United States that can be associated with firms’ legal origin or with other home-country institutional features. Our results suggest that the regulatory enforcement and scrutiny of capital markets imposed by the US market compensate for home-country institutional deficiencies and eliminate differences in firms’ RPT disclosures across legal origins.

A major challenge for many countries is the implementation of environmental regulations developed to reduce or eliminate air, water, and other pollutants. Recent efforts to ensure value for money in environmental protection, examine how to improve regulatory design, compliance promoting, and regulatory enforcement to deter and prevent regulatory violation. Work in accountability mechanisms such as performance audits have helped identify regulatory implementation issues. Opportunity exits to supplement traditional compliance promotion with new environmental data sources, including from citizen science.

The following sections are included:

• Introduction

• The balance of power between central government and the provinces
  • The increasing power of the provinces
  • The key to central government influence

• The weakness of the evolving regulatory framework

• The impact on regulation of the energy industry

• Issues to be addressed

• Conclusions

• References

In this chapter, we review some recent work on public intervention in economic environments where firms undertake investments in research or in physical assets, and then select appropriate business practices to extract profits from the outcomes of the investment process. Public policies may take different forms: the release of an authorization; the setting of fines and damages for liability; or the choice of legal standards in antitrust law enforcement. The business practices are privately profitable but may be welfare enhancing or socially harmful. When expectations are optimistic, public policies face a trade-off between ex-ante effects on investment, that suggest hands off, and ex-post control of practices when harmful, that requires intervention. Our general result suggests that public policies should be softer when innovation is an important source of welfare improvements.