Carlo CAMBINI - Politecnico Turin - "Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?"

Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?

Bernardo Bortolotti (Università di Torino, FEEM), Carlo Cambini (Politecnico di Torino, IMT Lucca and FEEM), Laura Rondi (Politecnico di Torino, CERIS-CNR and FEEM) and Yossi Spiegel (Tel Aviv University, CEPR and ZEW)

We study the effect of ownership structure and regulatory independence on the interaction between capital structure and regulated prices using a comprehensive panel data of publicly traded European utilities. We find that firms in our sample tend to have a higher leverage if they are privately-controlled and regulated by an independent regulatory agency. Moreover, the leverage of these firms has a positive and significant effect on their regulated prices, but not vice versa. Our results are consistent with the theory that privately-controlled regulated firms use leverage strategically to obtain better regulatory outcomes.