Is There Room for Growth? Debt, Growth Opportunities and the Deregulation of U.S. Electric Utilities

29 Pages Posted: 7 Dec 2005 Last revised: 23 Feb 2009

See all articles by Laarni T. Bulan

Laarni T. Bulan

Cornerstone Research

Paroma Sanyal

Brandeis University - Department of Economics

Date Written: February 16, 2009

Abstract

We investigate the impact of growth opportunities on the financing decisions of investor-owned electric utilities in the U.S. when the electricity sector was deregulated. We find that the relationship between leverage and growth opportunities can be positive or negative, depending on the nature of the growth opportunity. Despite these opposing effects on leverage ratios, we find that electric utilities are issuing new debt in response to the same growth opportunities. Our results highlight that financing choice is not a simple one-period decision but a dynamic occurrence and that conventional leverage regressions cannot fully capture this dynamic response.

Keywords: Capital Structure, Growth Opportunities, Deregulation, Electric Utility

JEL Classification: G32, L25, L51, L94

Suggested Citation

Bulan, Laarni Tobia and Sanyal, Paroma, Is There Room for Growth? Debt, Growth Opportunities and the Deregulation of U.S. Electric Utilities (February 16, 2009). Available at SSRN: https://ssrn.com/abstract=867004 or http://dx.doi.org/10.2139/ssrn.867004

Laarni Tobia Bulan (Contact Author)

Cornerstone Research ( email )

Boston, MA
United States

Paroma Sanyal

Brandeis University - Department of Economics ( email )

Waltham, MA 02454
United States

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