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Capital Structure and Regulation: Does Ownership Matter?

Author

Listed:
  • 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.

Suggested Citation

  • Carlo Cambini & Bernardo Bortolotti & Laura Rondi & Yossi Spiegel, 2007. "Capital Structure and Regulation: Does Ownership Matter?," Working Papers 2007.94, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2007.94
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    References listed on IDEAS

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    Citations

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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. Mario Pietrunti, 2010. "Regulation and Investment Incentives for Next Generation Broadband Access Networks," Chapters,in: Promoting New Telecom Infrastructures, chapter 2 Edward Elgar Publishing.
    3. Sarkar, Sudipto, 2015. "Price limits and corporate investment: The consumers' perspective," Economic Modelling, Elsevier, vol. 50(C), pages 168-178.
    4. Nikogosian, Vigen & Veith, Tobias, 2012. "The impact of ownership on price-setting in retail-energy markets—The German case," Energy Policy, Elsevier, vol. 41(C), pages 161-172.
    5. Hayam Wahba, 2014. "Capital structure, managerial ownership and firm performance: evidence from Egypt," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1041-1061, November.
    6. 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 - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

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

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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