IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2681.html
   My bibliography  Save this paper

Capital Structure and Regulation in U.S. Local Telephony: An Exploratory Econometric Study

Author

Listed:
  • Marcelo Resende

Abstract

The paper aims at empirically investigating the relationship between regulation and the capital structure of the regulated firm, A key aspect of the referred relationship pertains a leverage effect according to which debt could be increased as a response to previous physical capital investment with an ultimate goal of inducing higher rates. Theoretical models like Spiegel and Spulber [1997, RAND Journal of Economics] highlight that effect. The present paper considers a panel data set of local exchange carriers-LECs in the U.S. and investigate Granger causality between changes in long-term debt (NDEBT) and gross investment (INV) in physical capital. The evidence accruing from a dynamic panel data estimation indicates an uni-directional causality from INV to NDEBT and therefore is, to a large extent, consistent with a leverage effect and with the notion that the size of the firm´s investment project can impose a restriction on the amount of new debt. The result prevails independent of a control variable that indicates the regulatory regime.

Suggested Citation

  • Marcelo Resende, 2009. "Capital Structure and Regulation in U.S. Local Telephony: An Exploratory Econometric Study," CESifo Working Paper Series 2681, CESifo.
    • Handle: RePEc:ces:ceswps:_2681
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2681.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Resende, Marcelo, 1999. "Productivity growth and regulation in U.S. local telephony," Information Economics and Policy, Elsevier, vol. 11(1), pages 23-44, March.
    2. Yossef Spiegel & Daniel F. Spulber, 1994. "The Capital Structure of a Regulated Firm," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 424-440, Autumn.
    3. Spiegel, Yossef, 1994. "The Capital Structure and Investment of Regulated Firms under Alternative Regulatory Regimes," Journal of Regulatory Economics, Springer, vol. 6(3), pages 297-319, September.
    4. Ai, Chunrong & Sappington, David E M, 2002. "The Impact of State Incentive Regulation on the U.S. Telecommunications Industry," Journal of Regulatory Economics, Springer, vol. 22(2), pages 133-159, September.
    5. Yossef Spiegel & Daniel F. Spulber, 1997. "Capital Structure with Countervailing Incentives," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 1-24, Spring.
    6. Resende, Marcelo & Otavio Facanha, Luis, 2005. "Price-cap regulation and service-quality in telecommunications: an empirical study," Information Economics and Policy, Elsevier, vol. 17(1), pages 1-12, January.
    7. Frank A. Wolak, 1994. "An Econometric Analysis of the Asymmetric Information, Regulator-Utility Interaction," Annals of Economics and Statistics, GENES, issue 34, pages 1-12.
    8. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    9. Spiegel, Yossef, 1997. "The choice of technology and capital structure under rate regulation," International Journal of Industrial Organization, Elsevier, vol. 15(2), pages 191-216, April.
    10. Banerjee, Aniruddha, 2003. "Does incentive regulation 'cause' degradation of retail telephone service quality?," Information Economics and Policy, Elsevier, vol. 15(2), pages 243-269, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," Quantitative Macroeconomics Working Papers 20906, Hamburg University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kashi, Bahman, 2015. "Risk management and the stated investment costs by independent power producers," Energy Economics, Elsevier, vol. 49(C), pages 660-668.
    2. repec:ebl:ecbull:v:30:y:2010:i:1:p:392-404 is not listed on IDEAS
    3. Carlo Cambini & Laura Rondi, 2011. "Independence, Investment and Political Interference: Evidence from the European Union," RSCAS Working Papers 2011/42, European University Institute.
    4. Bernardo Bortolotti & Carlo Cambini & Laura Rondi & Yossi Spiegel, 2011. "Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 517-564, June.
    5. Bernardo Bortolotti & Carlo Cambini & Laura Rondi, 2011. "Regulatory Independence, Ownership and Firm Value: The Role of Political Institutions," RSCAS Working Papers 2011/43, European University Institute.
    6. Fay, Marianne & Martimort, David & Straub, Stéphane, 2021. "Funding and financing infrastructure: The joint-use of public and private finance," Journal of Development Economics, Elsevier, vol. 150(C).
    7. Spiegel, Yossi, 2002. "Reply to Kai-Uwe Kuhn's comment," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 279-281, February.
    8. Resende, Marcelo & Otavio Facanha, Luis, 2005. "Price-cap regulation and service-quality in telecommunications: an empirical study," Information Economics and Policy, Elsevier, vol. 17(1), pages 1-12, January.
    9. Facanha, Luis Otavio & Resende, Marcelo, 2004. "Price cap regulation, incentives and quality:: The case of Brazilian telecommunications," International Journal of Production Economics, Elsevier, vol. 92(2), pages 133-144, November.
    10. Clive Stones, 2007. "Risk Sharing, the Cost of Equity and the Optimal Capital Structure of the Regulated Firm," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(2), pages 139-159, March.
    11. Jamison, Mark & Mandy, David M. & Sappington, David E.M., 2014. "Motivating regulated suppliers to assess alternative technologies, protocols, and capital structures," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 13-22.
    12. Carlos Pérez Montes, 2011. "Optimal capital structure and Regulatory Control," Working Papers 1128, Banco de España.
    13. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    14. Spiegel, Yossi & Cambini, Carlo, 2011. "Investment and capital structure of partially private regulated firms," CEPR Discussion Papers 8508, C.E.P.R. Discussion Papers.
    15. Carlo Cambini & Yossi Spiegel, 2016. "Investment and Capital Structure of Partially Private Regulated Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 487-515, April.
    16. Clive J Stones, "undated". "Risk Sharing, the Cost of Equity and the Optimal Capital Structure of the Regulated Firm," Discussion Papers 05/31, Department of Economics, University of York.
    17. David Martimort & Flavio Menezes & Myrna Wooders & FLÁVIO MENEZES & MATTHEW RYAN, 2015. "Default and Renegotiation in Public-Private Partnership Auctions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 49-77, February.
    18. Arve, Malin, 2014. "Procurement and predation: Dynamic sourcing from financially constrained suppliers," Journal of Public Economics, Elsevier, vol. 120(C), pages 157-168.
    19. Olivier Debande, 1997. "Le rôle du secteur privé dans le financement des infrastructures : une mise en perspective historique," Revue Économique, Programme National Persée, vol. 48(2), pages 197-230.
    20. Carlo Cambini & Laura Rondi & Yossi Spiegel, 2012. "Investment and the Strategic Role of Capital Structure in Regulated Industries: Theory and Evidence," Chapters, in: Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), Recent Advances in the Analysis of Competition Policy and Regulation, chapter 13, Edward Elgar Publishing.
    21. Polemis, Michael L. & Fafaliou, Irene, 2015. "Electricity regulation and FDIs spillovers in the OECD: A panel data econometric approach," The Journal of Economic Asymmetries, Elsevier, vol. 12(2), pages 110-123.

    More about this item

    Keywords

    regulation; capital structure; dynamic panel data;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.