Optimal capital structure and Regulatory Control

Carlos Pérez Montes ()
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Carlos Pérez Montes: Banco de España

No 1128, Working Papers from Banco de España

Abstract: This article studies how the managers of a regulated firm can use debt and equity contracts to constrain the regulator’s policy through the contingent transfer of control to external investors with high relative liquidation value. External finance increases regulated income and facilitates investment, but managers generally choose socially excessive levels of outside funds. If bankruptcy law favors reorganization over liquidation, the managers’s value of debt for a given investment level decreases. In the presence of income risk, regulatory ex ante commitment can increase the firm’s value if the regulator’s preference for continuation is high relative to that of managers.

Keywords: Industrial regulation; capital structure; control rights; hold-up; bankruptcy (search for similar items in EconPapers)
JEL-codes: G32 G33 L51 L52 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2011-11
New Economics Papers: this item is included in nep-bec and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1128

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