Capital Structure and Regulation: Does Ownership Matter?
Università di Torino
Polytechnic University of Turin
Politecnico di Torino - Faculty of Engineering; CERIS-CNR
Tel Aviv University - The Leon Recanati Graduate School of Business Administration
FEEM Working Paper No. 94.2007
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, L33working papers series
Date posted: October 17, 2007
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