Capital structure and regulation: do ownership and regulatory independence matter? Discussion paper

We study the effect of ownership structure and regulatory independence on the interaction between capital structure, regulated prices, and firm value, 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 if they are 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, and it also has a positive and significant effect on their market values. Our results are consistent with the theory that privately-controlled regulated firms use leverage strategically to obtain better regulatory outcomes.