Optimal Capital Structure and Regulatory Control
56 Pages Posted: 8 Nov 2011
Date Written: November 8, 2011
Abstract
This article studies how the managers of a regulated firm can use debt and equity contracts to constrain the regulator’s policy through the contingent transfer of control to external investors with high relative liquidation value. External finance increases regulated income and facilitates investment, but managers generally choose socially excessive levels of outside funds. If bankruptcy law favors reorganization over liquidation, the managers’ value of debt for a given investment level decreases. In the presence of income risk, regulatory ex ante commitment can increase the firm’s value if the regulator’s preference for continuation is high relative to that of managers.
Keywords: Industrial regulation, capital structure, control rights, hold-up, bankruptcy
JEL Classification: L51, L52, G32, G33
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Conglomeration Versus Strategic Focus: Evidence from the Insurance Industry
By Allen N. Berger, J David Cummins, ...
-
By J David Cummins and Mary A. Weiss
-
The Integration of the Financial Services Industry: Where are the Efficiencies?
-
Deregulation, Consolidation, and Efficiency: Evidence from the Spanish Insurance Industry
By J David Cummins and María Rubio-misas
-
By J David Cummins and Xiaoying Xie
-
The Capital Structure of Firms Subject to Price Regulation: Evidence from the Insurance Industry
By Robert W. Klein, Richard D. Phillips, ...
-
Effects of Regulation on Utility Financing: Theory and Evidence