The Capital Structure of Regulated Firms

Yossef Spiegel and Daniel Spulber

No 942, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

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.

Keywords: capital structure; regulation; investment; public utilities; bankruptcy. (search for similar items in EconPapers)
JEL-codes: G32 G38 L51 L9 (search for similar items in EconPapers)
Date: 1991-05
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Related works:
Journal Article: The Capital Structure of a Regulated Firm (1994)
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