Risk and Capital Structure in the Regulated Firm

This paper studies the role of capital structure in a regulated firm. We show that it affects the prices set by the regulator, the expected price being lower the higher the proportion of debt finance. However, when debt is increased beyond a certain level, the benefit of lower expected prices is off...

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Bibliographic Details
Published inJournal of regulatory economics Vol. 26; no. 1; pp. 69 - 84
Main Authors Fraja, Gianni De, Stones, Clive
Format Journal Article
LanguageEnglish
Published Norwell Springer Nature B.V 01.07.2004
Subjects
Capital structure
Consumers
Costs
Debt
Debt financing
Economic conditions
Economics
Employment
Enterprises
Equity
Equity capital
Equity financing
Expected utility
Finance
Leverage
Prices
Probability
Regulation
Risk
Stockholders
Utility functions
United Kingdom > UK
Europe
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Summary:This paper studies the role of capital structure in a regulated firm. We show that it affects the prices set by the regulator, the expected price being lower the higher the proportion of debt finance. However, when debt is increased beyond a certain level, the benefit of lower expected prices is offset by their increased variability. We also study the socially preferred capital structure. This is such that consumers carry some risk, in the form of higher prices in adverse economic conditions. [PUBLICATION ABSTRACT]
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0922-680X
1573-0468
DOI:10.1023/B:REGE.0000028014.01009.ed