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Capital Structure and Regulation: Does Ownership Matter?Bernardo BortolottiUniversità di Torino Carlo CambiniPolytechnic University of Turin Laura RondiPolitecnico di Torino - Faculty of Engineering; CERIS-CNR Yossi SpiegelTel Aviv University - The Leon Recanati Graduate School of Business Administration October 2007 FEEM Working Paper No. 94.2007 Abstract: We construct a comprehensive panel data of 96 publicly traded European utilities over the period 1994-2005 in order to study the relationship between the capital structure of regulated firms, regulated prices, and investments, and examine if and how this interaction is affected by ownership structure. We show that firms in our sample increase their leverage after becoming regulated by an independent regulatory agency, but only if they are privately controlled. Moreover, we find that the leverage of these firms has a positive and significant effect on regulated prices, but not vice versa, and it also has a positive and significant effect on their investment levels. Our results are consistent with the theory that privately-controlled firms use leverage strategically to shield themselves against regulatory opportunism.
Number of Pages in PDF File: 45 Keywords: Regulated Utilities, Regulatory Agencies, Capital Structure, Leverage, Investment, Private and State Ownership JEL Classification: L51, G31, G32, L33 working papers seriesDate posted: October 17, 2007Suggested CitationContact Information
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