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The Capital Structure of Regulated Firms

Author

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  • Yossef Spiegel
  • Daniel F. Spulber

Abstract

The equilibrium price, investment, and capital structure of a regulated firm are examined using a sequential model of regulation. The firm's capital structure is shown to have a significant effect on regulated prices, so that the firm's choice of debt and equity levels refelect regulatory responses. Moreover, debt financing weakens the incentive for regulators to "hold up" the firm so that leveraged firms can invest more than all-equity firms.

Suggested Citation

  • Yossef Spiegel & Daniel F. Spulber, 1991. "The Capital Structure of Regulated Firms," Discussion Papers 942, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:942
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    Keywords

    capital structure; regulation; investment; public utilities; bankruptcy.;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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