This presentation is part of: L50-1 Regulation and Industrial Policy

Capital Structure and the Product Market: The case of European Electricity Marke

Anna Toldra, Ph., D., Finance, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208

We use the implementation of deregulation on the European electricity markets to study the effect of competition on capital structure choices. Various theories predict that deregulation should lead to lower leverage. We find that pattern in the data. We then show that this decrease in leverage allowed incumbent firms to insulate their margins from the increased competition and we suggest an explanation for this: firms modify leverage for strategic reasons, either to prevent entry or to soften competition following entry.