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Research Details
Capital Structure with Countervailing Incentives, RAND Journal of Economics
Abstract
The regulated firm's choice of capital structure is affected by countervailing incentives: the firm wishes to signal high value to capital markets to boost its market value while also signalling high cost to regulators to induce rate increases. When the firm's investment is large, countervailing incentives lead both high- and low-cost firms to choose the same capital structure in equilibrium, thus decoupling capital structure from private information. When investment is small or medium-sized, the model may admit separating equilibria in which high-cost firms issue greater equity and low-cost firms rely more on debt financing.
Type
Article
Author(s)
Yossef Spiegel, Daniel Spulber
Date Published
1997
Citations
Spiegel, Yossef, and Daniel Spulber. 1997. Capital Structure with Countervailing Incentives. RAND Journal of Economics. 28(1): 1-24.
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