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Academic research has always been a great support in finance and accounting .specifically if we talk about finance a great number of research papers have been published to make improvement in various regulations established in finance and accounting. These regulations play a major role in controlling and maintain the fluctuations in financial market. In any organization every finance based activity is regulated by those regulators who maintain the integrity of financial processes carried out within an organization involving local and international transactions we believe that most of the academic research conducted in this regard have not sufficiently helped improving the finance and accounting regulations and it does not play a major role in making necessary amendment to reduce the number of discrepancies that exist in financial matters. In order to further justify our opinion we have conducted a survey research in major organizations having a well established finance department and we interviewed the prominent personnel s working there .we have selected the topic of rate of return regulations in which we have checked that a firm's product prices are restricted by the requirement that investors do not earn more than a permissible return on the firm's assets .In order to check that regulation we have visited many organizations where consumer goods are being manufactured and visited their finance department .we asked several questions that covered major areas like asset management , scheduling the depreciation in assets, costs and prices during investments for the sake of expansion, managing the return on investment keeping the prices stable. All the points were focused in the questions which were included in face to face interviews in order to check the applicability of rate of return regulations. It was found that overall efficiency of rate of return regulation depends upon how well the depreciation schedule of assets coincides with the productivity pattern. Due to rate of return regulation prices are set in such a way that companies attain a target value of return on investment which not only cover the operating cost but also other expenses. The main reason behind that is prices tend to be increased by the time along with the increase in productivity due to increase in operating expense and rate of return regulations have been inefficient in regulating the price and quantities against marginal cost pricing .when an investment is made it is decided by the help of rate of return regulators that how much asset is being depreciated within a specified period of time and what would be the depreciation pattern if we further expand the production by additional investment ,major flaw in this case is that regulatory agencies apply straight line method of depreciation to determine the long run marginal cost in case of overlapping investments. It is considered that the historical cost should meet the long run cost of investment but there may be a possibility that by the passage of time the requirement of assets may not be the same as it is before or may be the asset requirement may get change or the operating equipments whose depreciation has been calculated for next
So company has to increase prices to achieve break even. Sappington and Sibley 1988). proof against management.in rate of return regulation. Certainly. Wilson 1993). As major companies who are exclusively providing any product may set high prices due to deregulation and get maximum profit but price regulation enables them to maximize profit but within a confined limit of pricing to which they can get maximum profit but not extremely high .Price is determined. Price regulation is better because it covers the serious issues of profit maximization. gas and electric distribution.in that way they are given leverage to change their price in response to a change in market situation or increased production due to further investment. and Vickers 1994. Braeutigam and Panzer(1993) conclude that the US evidence supports the view that price regulation is an effective means of controlling the prices of dominant firms when the control of their earnings is left to the competitive marketplace and is probably most effective as a transient step on the course toward total deregulation and full competition. under these circumstances company has to deviate against the regulations of finance in order to maintain their integrity in the market and keep existence. balancing the better incentives of price regulation against the minor professed investor risk and cost of capital .if the market growth rate has declined so firm has to make extra investments to build the market and a contingent plan is required in place of rate of return regulations in order to stabilize the cost with price because in that case company might be in a condition that could be said below breakeven stage. strength. Many creative plan have been projected (surveyed in Train 1993. or those which amend the regulation (Vogelsang and Finsinger 1979.ROR on certain costs determined to be fair. It deals with providing benefit to company as well as to customer by a win-win situation. and the need for regulatory assurance. According to above statement we can say that regulation does not mean that once we have designed a specific pattern for setting costs against price then we have to follow that rule of thumb for an ongoing period of time but it .ten years may not be applicable and being replaced by new equipment . plainness. price regulation is increasingly replacing rate-of-return regulation. (Braeutigam and Panzer 1993: 197). Laffont and Tirole1993. Cowan. Unnecessary costs are eliminated . Armstrong. and public satisfactoriness. particularly those in which utilities are given a set of choices of substitute regulatory method. it is less clear that stable price regulation with periodic reviews is better for major companies domination like water. There is another possibility that growth rate in market in the next ten years may not be the same as calculated upon which the whole plan of investment and costs were calculated and prices were stabilized according to those costs . constancy.in that case the overall design of cost management and price setting gets worthless. While it is clear that price regulation is better for industries where it may only be needed in the changeover to deregulation.it involves steps like Costs are review. Few of these articles sufficiently deal with the practical matter that regulation is a recurring game with intermittent analysis. According to our respondents interviewed. The whole process of regulation cannot be applicable to real life because it follows certain ideal conditions which are not applicable to real life .
If under these conditions it would still abide by the regulations assigned under rate of return. it would soon be in condition when it gets failed to achieve any notable position in the market because regulations are just a matter of idealism keeping everything constant under specific circumstances that s entirely opposite to real field References David M Newbery. Department of Applied Economics. Stanford University (2011). Rajan and Stefan Reichelstein. due to which they are unable to make any kind of change according to the change in situations in market . School of Business. Dynamics of Rate-of-Return Regulation . May be the regulatory bodies are obliged to follow the lines of policies assigned to make finance regulations.that s what we heard from the people whim we interviewed that what so ever is published in research papers and whatever are the rules assigned for specific financial matters cannot be exactly applied to real life because every company needs profit and if it does not make moderation in financial regulation it would be extremely company to resist or survive in the market. Cambridge (1997). Due to the changes in economic situation company inventory price also increase which result in an increase in overall cost of asset and it makes an impact on total cost of operations.need persistent amendment and improvement but unfortunately what we propose in theory or research it cannot be implemented in practical field. Rate-of-return regulation versus price regulation for public utilities Alexander Nezlobin and Madhav V.
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