DP8508 Investment and capital structure of partially private regulated firms

Author(s): Carlo Cambini, Yossi Spiegel
Publication Date: August 2011
Keyword(s): debt, government ownership, investment, regulation, regulatory climate, regulatory independence
JEL(s): G32, L33, L51
Programme Areas: Financial Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8508

We develop a model that examines the capital structure and investment decisions of regulated firms in a setting that incorporates two key institutional features of the public utilities sector in many countries: firms are partially owned by the state and regulators are not necessarily independent. Among other things, we show that firms invest more, issue more debt, and are allowed to charge higher prices when they are more privatized and when the regulator is more independent and more pro-firm.