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Assessing impact of regulatory risk on shareholders’ wealth

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  • Joseph Emmanuel Lukban Angeles

Abstract

Research indicates that regulatory risk increases required return on investment by investors and causes underinvestment in industries with high sunk costs. The effects of regulatory changes may be measured by estimating the abnormal returns associated with the event. The results may suggest to regulators what should be encouraged or avoided. This article utilizes a fixed effects regression to examine abnormal returns from changes in Philippine nationalization regulations. The results are consistent with extant literature. Supreme Court decisions, which increased uncertainty and regulatory risk, produced negative abnormal returns. The initial release of draft implementing rules did not produce statistically significant effects, but a succeeding draft favouring liberalization, produced positive abnormal returns.

Suggested Citation

  • Joseph Emmanuel Lukban Angeles, 2017. "Assessing impact of regulatory risk on shareholders’ wealth," Applied Economics, Taylor & Francis Journals, vol. 49(2), pages 202-212, January.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:2:p:202-212
    DOI: 10.1080/00036846.2016.1194962
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    1. Burkhard Pedell, 2006. "Regulatory Risk and the Cost of Capital," Springer Books, Springer, number 978-3-540-30802-7, January.
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