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Cross-sectoral effects of regulatory uncertainty: Lessons from Brazil

Author

Listed:
  • Cavalcante-Filho, Elias
  • De-Losso, Rodrigo
  • Sande, Felipe
  • Savoia, José Roberto

Abstract

This paper examines the multifaceted impact of regulatory changes on systemic risk within the affected sector and their contagion effects on other regulated industries. Using the sudden implementation of Brazilian legislation (Provisional Act No. 579/2012, which restructured the electricity sector) as a natural experiment, we assess whether such a policy shock increased market risk exposure for directly and indirectly affected firms. To estimate causal effects, we combine the Synthetic Control Method and Difference-in-Differences approaches, using CAPM betas as the measure of systemic risk for publicly traded firms between 2005 and 2018. The results indicate that PA579 significantly increased the systemic risk of electricity companies and also raised market risk in other regulated sectors, including highways, healthcare, gas, telephony, sanitation, and aviation. These findings highlight that abrupt regulatory interventions can propagate credibility shocks beyond their target sector, underscoring the importance of transparency and predictability in regulatory policy design.

Suggested Citation

  • Cavalcante-Filho, Elias & De-Losso, Rodrigo & Sande, Felipe & Savoia, José Roberto, 2026. "Cross-sectoral effects of regulatory uncertainty: Lessons from Brazil," Utilities Policy, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:juipol:v:98:y:2026:i:c:s0957178725002206
    DOI: 10.1016/j.jup.2025.102105
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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