Regulation and Systematic Risk in the Electric Utility Industry: A Test of the Buffering Hypothesis

Davidson, Wallace N,, Nanda Rangan and Stuart Rosenstein

The Financial Review, 1997, vol. 32, issue 1, 163-84

Abstract: In this paper, the authors test Peltzman's buffering hypothesis--whether regulatory environment impacts systematic risk for regulated electric utilities. The paper differs from previous research in that an exogenously defined measure of regulatory environment, a large sample, and a method that controls for time-series and cross-sectional autocorrelation are used. The results are consistent with the buffering hypothesis but only in years of increasing input factor prices for the utilities. Using causality tests, the results also show that it is the regulatory environment that influences systematic risk and not vice versa. Copyright 1997 by MIT Press.

Date: 1997
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