A FINANCIAL ANALYSIS OF THE INTERSTATE COMMERCE COMMISSION (ICC) TERMINATION ACT OF 1995 ON THE MOTOR CARRIER INDUSTRY

INTRODUCTION Prior to termination of the Interstate Commerce Commission, one of the primary responsibilities of the ICC was to observe surface transportation providers and monitor their compliance with economic regulations. Primarily due to dramatic deregulation of U.S. surface transportation over the last twenty years, U.S. lawmakers determined the ICC was no longer necessary. As a result, the Interstate Commerce Commission (ICC) was terminated effective January 1,1996. Considerable speculation exists in the transportation (industry about the economic and/or strategic impacts associated with a public policy change like termination of the ICC. Past research into market structure has examined the impact of a public policy change on the strategies pursued by members of the transportation industry (Smith & Grimm 1987, Corsi & Grimm 1989). However the authors were unable to identify previous transportation research specifically examining the immediate financial impact created by a public policy change. Therefore the current research focuses on examining the immediate financial response experienced by publicly traded motor carriers when news of termination of the ICC was publicized. BACKGROUND Since the late 1970's a major trend in the United States has been to reduce or eliminate economic regulation in the transportation industry. During this era industry practitioners successfully argued that motor carrier regulation made entrance into the motor carrier industry extremely difficult and dramatically reduced or completely eliminated price competition and service enhancement (Chow 1980). As a result the ICC began to reduce enforcement of regulatory policies in the late 1970's (Pickett & Kletke 1984, Pustay 1985). In 1980 Congress responded to pressure to deregulate this mode of surface transportation by passing the Motor Carrier Act of 1980. The act dramatically reformed the regulatory structure of the motor carrier industry and began the process of restoring the industry to a free market. Since passage of the Motor Carrier Act of 1980 the trend towards further deregulation of the motor carrier industry has continued. Subsequent acts have facilitated the process of deregulation by abolishing additional regulations. The ICC Termination Act of 1995 was seen by many in the motor carrier industry as a continuation of the trend to reduce government intervention into private enterprise. As recently as the mid-1990's industry participants have successfully argued that the federal government needs to continue the trend of deregulation. They argue that eliminating some existing regulations is necessary if the motor carrier industry is to operate in a totally free market environment. The ICC Termination Act of 1995 addressed several of the regulatory concerns of industry lobbyists by reducing or eliminating regulations perceived by many to be restrictive. A few key areas addressed in the 1995 ICC Termination Act include: elimination of restrictions on contract carriers, reduction in tariff filing requirements, and further reduction in rate regulation. STUDY Past research indicates that the net impact of motor carrier deregulation from 1980 to 1990 was positive (Winston, Corsi, Grimm & Evans, 1990). However, past research also indicates motor carrier deregulation has been a troublesome event for many as evidenced by the significant number of bankruptcies occurring in the years since industry deregulation began (Corsi, Grimm, Smith, & Smith 1991, Harper & Johnson 1987, LaLonde 1984-1985). Therefore, the current research attempts to determine if the trend toward motor carrier deregulation is still perceived positively in the mid-1990's. To accomplish this the researchers look at one specific public policy change (termination of the ICC) perceived by most industry observers and participants to be a move towards further deregulation. If this act of deregulation was viewed favorably (unfavorably) by the motor carrier industry, then one should find that the stock prices of motor carriers increased (decreased) when it was announced that the ICC would be terminated. …