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Marcelo Resende
 
''Capital Structure and Regulation in U.S. Local Telephony: an Exploratory Econometric Study''
( 2010, Vol. 30 No.1 )
 
 
The paper aims at empirically investigating the relationship between regulation and the capital structure of the regulated firm, A key aspect of the referred relationship pertains a leverage effect according to which debt could be increased as a response to previous physical capital investment with an ultimate goal of inducing higher rates. Theoretical models like Spiegel and Spulber [1997, RAND Journal of Economics] highlight that effect. The present paper considers a panel data set of local exchange carriers-LECs in the U.S. and investigate Granger causality between changes in long-term debt (NDEBT) and gross investment (INV) in physical capital. The evidence accruing from a dynamic panel data estimation indicates an uni-directional causality from INV to NDEBT and therefore is, to a large extent, consistent with a leverage effect and with the notion that the size of the firm´s investment project can impose a restriction on the amount of new debt. The result prevails independent of a control variable that indicates the regulatory regime.
 
 
Keywords: regulation; capital structure; dynamic panel data
JEL: L5 - Regulation and Industrial Policy: General
G3 - Corporate Finance and Governance: General
 
Manuscript Received : Dec 10 2009 Manuscript Accepted : Jan 28 2010

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