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Regulatory structure and risk and infrastructure firms : an international comparison

Author

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  • Alexander, Ian
  • Mayer, Colin
  • Weeds, Helen

Abstract

Evidence about how choice of regulatory regimes affects the level of shareholder risk for the regulated company has traditionally focused on studies in the United Kingdom and the United States. Broad comparisons of price-cap based regimes (as practiced in the UK) with rate-of-return regulation (as practiced in the US) show price-cap based regimes to be associated with higher levels of shareholder risk (as measured by the beta value) than rate-of-return regulation is. But so few countries were compared that it was suspected that other factors could be at work. The authors broaden the investigation by studying more countries (including regulated utilities in Canada, Europe,, and Latin America), doing a sectoral comparison to control for some risks related to factors other than the regulatory regime, and use narrower classifications for the regulatory regime. They also look at such recent evidence as the move from relatively pure price caps in the UK electricity sector to a mixed-revenue/price-cap based system. The authors find results aligned with earlier research, namely that investors bear the greatest nondiversifiable risk with price caps and the least nondiversifiable risk with rate-of-return regulation.

Suggested Citation

  • Alexander, Ian & Mayer, Colin & Weeds, Helen, 1996. "Regulatory structure and risk and infrastructure firms : an international comparison," Policy Research Working Paper Series 1698, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1698
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    Citations

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    Cited by:

    1. Kirkpatrick, Colin & Parker, David & Zhang, Yin-Fang, 2004. "Price and Profit Regulation in Developing and Transition Economies, Methods Used and Problems Faced: A Survey of the Regulators," Centre on Regulation and Competition (CRC) Working papers 30596, University of Manchester, Institute for Development Policy and Management (IDPM).
    2. Nnaemeka Vincent Emodi & Kyung-Jin Boo, 2015. "Decomposition Analysis of CO2 Emissions from Electricity Generation in Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 565-573.
    3. Gaggero, Alberto A., 2007. "Regulatory risk in the utilities industry: An empirical study of the English-speaking countries," Utilities Policy, Elsevier, vol. 15(3), pages 191-205, September.
    4. Alexander Moore & Stéphane Straub & Jean-Jacques Dethier, 2014. "Regulation, renegotiation and capital structure: theory and evidence from Latin American transport concessions," Journal of Regulatory Economics, Springer, vol. 45(2), pages 209-232, April.
    5. Clive Stones, 2007. "Risk Sharing, the Cost of Equity and the Optimal Capital Structure of the Regulated Firm," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(2), pages 139-159, March.
    6. Chalmeau, Olivier, 2013. "Determinants of European telecommunication operators systematic risk," 24th European Regional ITS Conference, Florence 2013 88495, International Telecommunications Society (ITS).
    7. Andrea Goldstein & José Claudio Linhares Pires, 2006. "Brazilian Regulatory Agencies: Early Appraisal and Looming Challenges," Chapters,in: Regulating Development, chapter 6 Edward Elgar Publishing.
    8. Gustavo Ferro & Omar Chisari, 2010. "Tópicos de Economía de la Regulación de los Servicios Públicos," Working Papers hal-00473038, HAL.
    9. Grout, Paul A. & Zalewska, Anna, 2006. "The impact of regulation on market risk," Journal of Financial Economics, Elsevier, vol. 80(1), pages 149-184, April.
    10. Alexander, Ian & Estache, Antonio & Oliveri, Adele, 2000. "A few things transport regulators should know about risk and the cost of capital," Utilities Policy, Elsevier, vol. 9(1), pages 1-13, March.
    11. Colin Kirkpatrick & David Parker & Yin-Fang Zhang, 2005. "Price and Profit Regulation in Developing and Transition Economies: A Survey of the Regulators," Public Money & Management, Taylor & Francis Journals, vol. 25(2), pages 99-105, April.
    12. Ian Alexander & Antonio Estache, 2000. "Industry restructuring and regulation: Building a base for sustainable growth - lessons from Latin America," Development Southern Africa, Taylor & Francis Journals, vol. 17(3), pages 307-337.
    13. Sirtaine, Sophie & Pinglo, Maria Elena & Guasch, J. Luis & Foster, Vivien, 2005. "How profitable are private infrastructure concessions in Latin America?: Empirical evidence and regulatory implications," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(2-3), pages 380-402, May.
    14. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    15. Marinês Taffarel & Wesley Vieira da Silva & Ademir Clemente & Claudimar Pereira da Veiga & Jansen Maia Del Corso, 2015. "The Brazilian Electricity Energy Market: The Role of Regulatory Content Intensity and Its Impact on Capital Shares Risk," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 288-304.
    16. Knight-John, Malathy & Jayasinghe, Shantha & Perumal, Andrew, 2004. "Regulatory Impact Assessment in Sri Lanka: The Bridges That Have To Be Crossed," Centre on Regulation and Competition (CRC) Working papers 30666, University of Manchester, Institute for Development Policy and Management (IDPM).
    17. Klein, Michael, 1997. "Managing guarantee programs in support of infrastructure investment," Policy Research Working Paper Series 1812, The World Bank.
    18. Paul Levine & Paul Levine & Jon Stern & Francesc Trillas, 2003. "Independent Utility Regulators: Lessons from Monetary Policy," School of Economics Discussion Papers 0403, School of Economics, University of Surrey.
    19. Kashi, Bahman, 2015. "Risk management and the stated investment costs by independent power producers," Energy Economics, Elsevier, vol. 49(C), pages 660-668.
    20. Bahman Kashi, 2014. "Risk Management and the Stated Capital Costs by Independent Power Producers," Development Discussion Papers 2014-03, JDI Executive Programs.
    21. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, April.
    22. Inung Jung & Philip Gayle & Dale Lehman, 2008. "Competition and investment in telecommunications," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 303-313.
    23. Boyle, Glenn & Evans, Lewis & Guthrie, Graeme, 2006. "Estimating the WACC in a Regulatory Setting: An Assessment of Dr Martin Lally's paper 'The Weighted Average Cost of Capital for Electricity Lines Businesses' of 8 September 2005," Working Paper Series 3844, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

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