IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v24y1997i1p1-26.html
   My bibliography  Save this article

The Effect of Regulatory Announcements on the Cost of Equity Capital of British Telecom

Author

Listed:
  • Antonios Antoniou
  • Gioia M. Pescetto

Abstract

This paper examines the impact of regulatory announcements which affect competition, pricing policy and the supply of services in the telecommunications industry on British Telecom's (BT) systematic risk, as measured by the beta coefficient of a market model. Changes in investors' perception of a company's systematic risk will of course also change its cost of equity capital. Since BT's beta coefficient is found to be unstable over the estimation period, the market model is estimated using a time‐varying parameter model. The results suggest that announcements which allow the price of BT's services to increase and announcements affecting its supply of services are likely to have an impact on BT's cost of equity capital, since they affect the investor's perception of BT's systematic risk. However, our analysis does not detect any effect from the other types of announcements tested. Further examination of the individual announcements included in the groups reveals that, within the non‐significant groups, many individual announcements are significant, but they affect beta in opposite directions and thus no prediction can be made on the sign of their aggregated impact. These findings suggest that when one company dominates the industry, such as in the case of the UK telecommunications industry, the actions of the regulator do not always have the expected effect and problems of regulatory capture are likely to be present.

Suggested Citation

  • Antonios Antoniou & Gioia M. Pescetto, 1997. "The Effect of Regulatory Announcements on the Cost of Equity Capital of British Telecom," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(1), pages 1-26, January.
  • Handle: RePEc:bla:jbfnac:v:24:y:1997:i:1:p:1-26
    DOI: 10.1111/1468-5957.00092
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1468-5957.00092
    Download Restriction: no

    File URL: https://libkey.io/10.1111/1468-5957.00092?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roger Buckland & Julian Williams & Janice Beecher, 2015. "Risk and regulation in water utilities: a cross-country comparison of evidence from the CAPM," Journal of Regulatory Economics, Springer, vol. 47(2), pages 117-145, April.
    2. Stefano Paleari & Renato Redondi, 2005. "Regulation Effects on Company Beta Components," Bulletin of Economic Research, Wiley Blackwell, vol. 57(4), pages 317-346, October.
    3. Huy Nguyen Anh Pham & Vikash Ramiah & Imad Moosa, 2020. "The effects of environmental regulation on the stock market: the French experience," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3279-3304, December.
    4. Gioia Pescetto, 2007. "Regulation and systematic risk: the case of the water industry in England and Wales," Applied Financial Economics, Taylor & Francis Journals, vol. 18(1), pages 61-73.
    5. Buckland, Roger & Fraser, Patricia, 2002. "The scale and patterns of abnormal returns to equity investment in UK electricity distribution," Global Finance Journal, Elsevier, vol. 13(1), pages 39-62.
    6. Chalmeau, Olivier, 2013. "Determinants of European telecommunication operators systematic risk," 24th European Regional ITS Conference, Florence 2013 88495, International Telecommunications Society (ITS).
    7. Hoang, Trang Cam & Pham, Huy & Ramiah, Vikash & Moosa, Imad & Le, Danh Vinh, 2020. "The effects of information disclosure regulation on stock markets: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 51(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:24:y:1997:i:1:p:1-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.