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| Marcelo Resende |
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| ''Capital Structure and Regulation in U.S. Local Telephony: an Exploratory Econometric Study'' |
| ( 2010, Vol. 30 No.1 ) |
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| 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.
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| Keywords: regulation; capital structure; dynamic panel data |
JEL: L5 - Regulation and Industrial Policy: General
G3 - Corporate Finance and Governance: General |
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| Manuscript Received : Dec 10 2009 | | Manuscript Accepted : Jan 28 2010 |
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