Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Bargaining and brinkmanship
T2 - capital structure choice by regulated firms
AU - Dasgupta, Sudipto
AU - Nanda, Vikram
PY - 1993
Y1 - 1993
N2 - A bargaining model of regulation is developed. It is shown that regulated firms can improve their bargaining positions and induce the regulator to set higher prices for firm output by choosing more debt. Firms, in choosing an optimal level of debt, trade off this bargaining advantage against expected bankruptcy costs. The model predicts that firms would tend to choose higher levels of debt in harsher regulatory environments. This prediction is shown to be consistent with cross-sectional evidence for U.S. electric utilities for the sample period 1972–1983.
AB - A bargaining model of regulation is developed. It is shown that regulated firms can improve their bargaining positions and induce the regulator to set higher prices for firm output by choosing more debt. Firms, in choosing an optimal level of debt, trade off this bargaining advantage against expected bankruptcy costs. The model predicts that firms would tend to choose higher levels of debt in harsher regulatory environments. This prediction is shown to be consistent with cross-sectional evidence for U.S. electric utilities for the sample period 1972–1983.
U2 - 10.1016/0167-7187(93)90021-4
DO - 10.1016/0167-7187(93)90021-4
M3 - Journal article
VL - 11
SP - 215
EP - 234
JO - International Journal of Industrial Organization
JF - International Journal of Industrial Organization
SN - 0167-7187
IS - 4
ER -