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The Effect of Regulatory Announcements on the Cost of Equity Capital of British Telecom


  • Antonios Antoniou

    (Department of Economics and Finance, Brunel University)

  • Gioia M. Pescetto

    (Department of Economics and Finance, Brunel University)


This paper examines the impact of regulatory announcements which affect competition, pricing policy and the supply of services in the telecommunications industry on British Telecom's (BT) systematic risk, as measured by the beta coefficient of a market model. Changes in investors' perception of a company's systematic risk will of course also change its cost of equity capital. Since BT's beta coefficient is found to be unstable over the estimation period, the market model is estimated using a time-varying parameter model. The results suggest that announcements which allow the price of BT's services to increase and announcements affecting its supply of services are likely to have an impact on BT's cost of equity capital, since they affect the investor's perception of BT's systematic risk. However, our analysis does not detect any effect from the other types of announcements tested. Further examination of the individual announcements included in the groups reveals that, within the non-significant groups, many individual announcements are significant, but they affect beta in opposite directions and thus no prediction can be made on the sign of their aggregated impact. These findings suggest that when one company dominates the industry, such as in the case of the UK telecommunications industry, the actions of the regulator do not always have the expected effect and problems of regulatory capture are likely to be present. Copyright Blackwell Publishers Ltd 1997.

Suggested Citation

  • Antonios Antoniou & Gioia M. Pescetto, 1997. "The Effect of Regulatory Announcements on the Cost of Equity Capital of British Telecom," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(1), pages 1-26.
  • Handle: RePEc:bla:jbfnac:v:24:y:1997-01:i:1:p:1-26

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    Cited by:

    1. Gioia Pescetto, 2007. "Regulation and systematic risk: the case of the water industry in England and Wales," Applied Financial Economics, Taylor & Francis Journals, vol. 18(1), pages 61-73.
    2. 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.
    3. 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.

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