Assessing impact of regulatory risk on shareholders’ wealth

Joseph Emmanuel Lukban Angeles

Applied Economics, 2017, vol. 49, issue 2, 202-212

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.

Date: 2017
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DOI: 10.1080/00036846.2016.1194962

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