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Public Utility Regulation and Bond Ratings

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  • Formby, John P
  • Mishra, Banamber
  • Thistle, Paul D

Abstract

This paper investigates the extent to which political factors, which vary across state Public Utility Commissions, affect electric utility bond ratings. The paper focuses on the effects of the commissioner selection method (election or appointment) and other politically determined variables on bond ratings of privately owned and regulated electric utilities. The paper develops a generalization of ordered logit that allows the latent risk measure to have a skewed and thick-tailed distribution. The distributional assumption underlying the standard logit model is strongly rejected. Empirically, both political variables and financial variables are determinants of electric utility bond ratings, and election of the PUC has a strong negative effect on bond ratings. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Formby, John P & Mishra, Banamber & Thistle, Paul D, 1995. "Public Utility Regulation and Bond Ratings," Public Choice, Springer, vol. 84(1-2), pages 119-136, July.
    • Handle: RePEc:kap:pubcho:v:84:y:1995:i:1-2:p:119-36
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    Cited by:

    1. Timothy Besley & Anne Case, 2003. "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 7-73, March.
    2. Ali Yurukoglu & Claire Lim, 2014. "Dynamic Natural Monopoly Regulation: Time Inconsistency, Asymmetric Information, and Political Environments," 2014 Meeting Papers 530, Society for Economic Dynamics.
    3. Galina Zudenkova, 2015. "Political cronyism," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 44(3), pages 473-492, March.
    4. Hertel, Kayla, 2013. "The effect of bond rating changes on stock prices in the electric utility industry," Master's Theses and Plan B Papers 158844, University of Minnesota, Department of Applied Economics.
    5. Grace, Martin F. & Phillips, Richard D., 2008. "Regulator performance, regulatory environment and outcomes: An examination of insurance regulator career incentives on state insurance markets," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 116-133, January.
    6. Leverty, J. Tyler & Grace, Martin F., 2018. "Do elections delay regulatory action?," Journal of Financial Economics, Elsevier, vol. 130(2), pages 409-427.

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