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The Capital Structure and Investment of Regulated Firms under Alternative Regulatory Regimes

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  • Spiegel, Yossef

Abstract

This paper explains how regulated firms choose their capital structure and examines the effects of this choice on investment and on regulated prices. It is shown that in equilibrium, firms have an optimal debt level and that given this debt level, the regulated price is set high enough to ensure that firms never become financially distressed. The analysis of the equilibrium yields testable hypotheses concerning the effects of changes in cost parameters and in the regulatory climate on the equilibrium investment level, capital structure, and regulated price. The anlaysis also shows that a regulatory restriction on the ability of the firm to issue securities may have an adverse effect on investment and consequently may harm consumers. Copyright 1994 by Kluwer Academic Publishers

Suggested Citation

  • Spiegel, Yossef, 1994. "The Capital Structure and Investment of Regulated Firms under Alternative Regulatory Regimes," Journal of Regulatory Economics, Springer, vol. 6(3), pages 297-319, September.
    • Handle: RePEc:kap:regeco:v:6:y:1994:i:3:p:297-319
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