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Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?

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Author Info
Bortolotti, Bernardo
Cambini, Carlo
Rondi, Laura
Spiegel, Yossi

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Abstract

We construct a comprehensive panel data of 92 publicly traded European utilities over the period 1994-2005 in order to study the relationship between capital structure, regulated prices, and firm value, and examine if and how this interaction is affected by ownership structure and regulatory independence. We show that regulated firms in our sample tend to have a higher leverage if they are privately-controlled and if they are regulated by an independent regulatory agency. Moreover, we find that the leverage of these firms has a positive and significant effect on their regulated prices, but not vice versa, and it also has a positive and significant effect on their market values. Our results are consistent with the theory that privately-controlled firms use leverage strategically to shield themselves against regulatory opportunism.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7100.

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Date of creation: Dec 2008
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Handle: RePEc:cpr:ceprdp:7100

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Related research
Keywords: capital structure; leverage; private and state ownership; Regulated utilities; regulatory agencies; regulatory independence;

Find related papers by JEL classification:
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out

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