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