Network Investments at the Firm Level

This paper analyses the effects of regulatory reforms and corporate restructuring on the firmlevel investments of telecommunications industry. A dynamic model of incumbents’ investment in network assets allows to test the explaining strength of several aspects of regulation, competition and corporate structure. The sample includes telecommunications incumbents from the enlarged European Union and two other European countries; firms are observed from 1995 to 2003. Special attention is devoted to describe the ownership and control patterns emerging in (former) State-owned enterprises. After having controlled for competition, regulations are estimated not to have a significant effect on the investment dynamic. However, the same market structure has less role when the privatization programs are taken into account. Privatization exposes network investments to cash-flow shortages, but this holds true only for State-owned enterprises with looser governance systems. Firms that have been privatized through public offers invest comparatively less, unless managers enjoy discretion in liquidity allocation .