Working Paper: NBER ID: w0866
Authors: Robert A. Taggart Jr.
Abstract: This paper examines the financing decisions of regulated public utilities. It is argued that the regulatory process affects utility financing choices both by conditioning the environment in which these choices are made and by creating opportunities for firms to influence the regulated price through strategic financing behavior. The nature of this regulatory effect continually changes, however, as economic conditions change and as regulators, firms and consumers adapt to one another's decisions. The direction of the impact on utility financing, therefore, may differ both over time and across regulatory jurisdictions. This theory of regulatory influence is tested by examining several episodes in the financing experience of U.S. electric utilities from 1912 to 1979. Evidence of a regulatory effect on utility financing is found particularly for the early years of state commission regulation. Examples of an adaptive response pattern on the part of regulators, firms and consumers are also cited.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| regulation (L51) | capital structure (G32) |
| regulation (L51) | financing mix (G32) |
| regulatory climate (r) (R50) | output price (p) (D41) |
| regulation (L51) | debt and preferred stock financing (G32) |
| economic pressures (P42) | debt and preferred stock financing (G32) |
| regulation (L51) | equity financing (G32) |
| economic conditions (E66) | equity financing (G32) |