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
Date Written: February 16, 2009
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: Suggested Citation