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Regulation, Profit Variability and Beta

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  • Binder, John J
  • Norton, Seth W

Abstract

Many tests of the Peltzman hypothesis that regulation buffers the firm's cash flows examine the firm's equity beta. We model the asset beta and show that it (and the equity beta) are a function of several variables beyond those found in previous tests. Since these variables are also affected by regulation, tests of the Peltzman theory that do not hold these factors constant will be biased. The empirical tests in this paper hold other determinants of beta equal and find evidence consistent with the Peltzman buffering hypothesis and the model of beta. Copyright 1999 by Kluwer Academic Publishers

Suggested Citation

  • Binder, John J & Norton, Seth W, 1999. "Regulation, Profit Variability and Beta," Journal of Regulatory Economics, Springer, vol. 15(3), pages 249-266, May.
    • Handle: RePEc:kap:regeco:v:15:y:1999:i:3:p:249-66
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    Citations

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    Cited by:

    1. Brewer, Elijah III & Genay, Hesna & Hunter, William Curt & Kaufman, George G., 2003. "The value of banking relationships during a financial crisis: Evidence from failures of Japanese banks," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 233-262, September.
    2. Chen, Sichong, 2013. "How do leverage ratios affect bank share performance during financial crises: The Japanese experience of the late 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 1-18.
    3. 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.
    4. 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.
    5. Rode, David C. & Fischbeck, Paul S., 2019. "Regulated equity returns: A puzzle," Energy Policy, Elsevier, vol. 133(C).
    6. Chalmeau, Olivier, 2013. "Determinants of European telecommunication operators systematic risk," 24th European Regional ITS Conference, Florence 2013 88495, International Telecommunications Society (ITS).
    7. António Manuel Amaral & Paulo Louro & Carla Mota & João Cristovão, 2010. "Assessing the cost of capital for USPs in Europe: a practical approach," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Heightening Competition in the Postal and Delivery Sector, chapter 23, Edward Elgar Publishing.
    8. Elijah Brewer & Hesna Genay & George G. Kaufman, 2003. "Banking relationships during financial distress: the evidence from Japan," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 27(Q III), pages 2-18.
    9. Harold A. Black & Raphael W. Bostic & Breck L. Robinson & Robert L. Schweitzer, 2005. "Do CRA‐Related Events Affect Shareholder Wealth? The Case of Bank Mergers," The Financial Review, Eastern Finance Association, vol. 40(4), pages 575-586, November.
    10. Helder Valente, 2003. "Financial Strategies in Mergers and Acquisitions (M&A): The Case of Regulated Firms," CEF.UP Working Papers 0307, Universidade do Porto, Faculdade de Economia do Porto.

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