Capital Structure and Regulation: Does Ownership Matter?

45 Pages Posted: 17 Oct 2007

See all articles by Bernardo Bortolotti

Bernardo Bortolotti

Bocconi University; University of Turin

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Laura Rondi

Politecnico di Torino

Yossi Spiegel

Tel Aviv University, Coller School of Management; Centre for Economic Policy Research (CEPR); ZEW – Leibniz Centre for European Economic Research

Date Written: October 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.

Keywords: Regulated Utilities, Regulatory Agencies, Capital Structure, Leverage, Investment, Private and State Ownership

JEL Classification: L51, G31, G32, L33

Suggested Citation

Bortolotti, Bernardo and Cambini, Carlo and Rondi, Laura and Spiegel, Yossi, Capital Structure and Regulation: Does Ownership Matter? (October 2007). FEEM Working Paper No. 94.2007. Available at SSRN: https://ssrn.com/abstract=1022342 or http://dx.doi.org/10.2139/ssrn.1022342

Bernardo Bortolotti

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

University of Turin

Via Po 53
Torino, Turin - Piedmont 10100
Italy

Carlo Cambini (Contact Author)

Politecnico di Torino & EUI - Florence School of Regulation ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy
+390115647292 (Phone)
+390115647299 (Fax)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Laura Rondi

Politecnico di Torino ( email )

Department of Management
Corso Duca degli Abruzzi, 24
Torino, 10129
Italy
+39 011 0907232 (Phone)

Yossi Spiegel

Tel Aviv University, Coller School of Management ( email )

Ramat Aviv, Tel Aviv, 69978
Israel
972-3-640-9063 (Phone)
972-3-640-7739 (Fax)

HOME PAGE: http://www.tau.ac.il/~spiegel

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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