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Capital Structure with Countervailing Incentives

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Author Info

  • Spiegel, Y.
  • Spulber, D.F.

Abstract

The regulated firm's choice of capital structure is affected by countervailing incentives: the firm wishes to signal high value to capital markets to boost its market value while also signalling high cost to regulators to induce rate increases. When the firm's investment is large, countervailing incentives lead both high- and low-cost firms to choose the same capital structure in equilibrium, thus decoupling capital structure from private information. When investment is small or medium-sized, the model may admit separating equilibria in which high-cost firms issue greater equity and low-cost firms rely more on debt financing.

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Bibliographic Info

Paper provided by Bell Communications - Economic Research Group in its series Papers with number 93.

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Length: 36 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:bellco:93

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Postal: Bell Communications Research; Economic Research Group, 445 South street Morristown, NJ 07962-1910, USA

Related research

Keywords: investments;

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Cited by:
  1. Gea M. Lee, 2004. "Collusion with Internal Contracting," Econometric Society 2004 Far Eastern Meetings 693, Econometric Society.
  2. Carlos Pérez Montes, 2011. "Optimal capital structure and Regulatory Control," Banco de Espa�a Working Papers 1128, Banco de Espa�a.
  3. Prieger, James E., 2007. "Regulatory delay and the timing of product innovation," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 219-236, April.
  4. James E. Prieger, 2003. "The Timing of Product Innovation and Regulatory Delay," Working Papers 19, University of California, Davis, Department of Economics.
  5. James E. Prieger, 2005. "Endogenous Regulatory Delay and the Timing of Product Innovation," Working Papers 54, University of California, Davis, Department of Economics.
  6. Pérez Montes, Carlos, 2013. "Regulatory bias in the price structure of local telephone service," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 462-476.
  7. Arve, Malin, 2013. "Procurement and Predation: Dynamic Sourcing from Financially Constrained Suppliers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 441, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. 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.

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