Capital Structure and Regulation: Does Ownership Matter?

Carlo Cambini, Bernardo Bortolotti (), Laura Rondi and Yossi Spiegel
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Carlo Cambini: Politecnico di Torino, DISPEA
Yossi Spiegel: Tel Aviv University and CEPR

No 2007.94, Working Papers from Fondazione Eni Enrico Mattei

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.

Keywords: Regulated Utilities; Regulatory Agencies; Capital Structure; Leverage; Investment; Private and State Ownership (search for similar items in EconPapers)
JEL-codes: L51 G31 G32 L33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-reg
Date: 2007-10
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Persistent link: http://EconPapers.repec.org/RePEc:fem:femwpa:2007.94

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