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Capital Structure and Regulation: Does Ownership Matter?

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Author Info

  • Carlo Cambini

    (Politecnico di Torino, DISPEA)

  • Bernardo Bortolotti

    (Università di Torino and Fondazione Eni Enrico Mattei)

  • Laura Rondi

    (Politecnico di Torino and CERIS-CNR)

  • Yossi Spiegel

    (Tel Aviv University and CEPR)

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.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.94.

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Date of creation: Oct 2007
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Handle: RePEc:fem:femwpa:2007.94

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Related research

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

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Cited by:
  1. Balazs Egert, 2009. "Infrastructure investment in network industries: The role of incentive regulation and regulatory independence," William Davidson Institute Working Papers Series wp956, William Davidson Institute at the University of Michigan.
  2. Nikogosian, Vigen & Weigand, Jürgen, 2012. "Forward integration and market entry: Evidence from natural gas markets for household customers in Germany," ZEW Discussion Papers 12-062, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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