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Bargaining and brinkmanship : capital structure choice by regulated firms

Dasgupta, Sudipto and Nanda, Vikram (1993) Bargaining and brinkmanship : capital structure choice by regulated firms. International Journal of Industrial Organization, 11 (4). pp. 215-234. ISSN 0167-7187

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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.

Item Type: Journal Article
Journal or Publication Title: International Journal of Industrial Organization
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 74572
Deposited By: ep_importer_pure
Deposited On: 07 Jul 2015 14:14
Refereed?: Yes
Published?: Published
Last Modified: 11 Apr 2018 02:15
Identification Number:

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