The Regulation of the United Kingdom Electricity Industry: An Event Study of Price-Capping Measures

The privatization of United Kingdom utilities after 1979 established a regulatory regime based around price capping rather than return capping. This innovation was intended to provide a predictable framework that encouraged efficiency. An event methodology was used to examine stock market reaction to the main regulatory announcements affecting 12 Regional Electric Companies from flotation to 1995. The results indicate that the regulatory announcements were only a minor contributor to the persistent abnormal returns observed. The low connection between regulatory events, efficiency changes and abnormal returns at company level lead to a conclusion that the initial structural and control frameworks dominated the regulatory framework.

[1]  P. Hersch.  The Effects of Resale Price Maintenance on Shareholder Wealth: The Consequences of Schwegmann , 1994 .

[2]  Michael D. Whinston,et al.  Entry and Competitive Structure in Deregulated Airline Markets: An Event Study Analysis of People Express , 1992 .

[3]  N. Strong,et al.  MODELLING ABNORMAL RETURNS: A REVIEW ARTICLE , 1992 .

[4]  Richard A. Posner,et al.  Taxation by Regulation , 1971 .

[5]  Kojo Menyah,et al.  The Pricing of Initial Offerings of Privatised Companies on the London Stock Exchange , 1990 .

[6]  J. Patell.  CORPORATE FORECASTS OF EARNINGS PER SHARE AND STOCK-PRICE BEHAVIOR - EMPIRICAL TESTS , 1976 .

[7]  S. Peltzman.  Constituent Interest and Congressional Voting , 1984, The Journal of Law and Economics.

[8]  H. Demsetz.  Information and Efficiency: Another Viewpoint. , 1969 .

[9]  Robert T. Masson,et al.  The Social Cost of Government Regulation of Milk , 1978, The Journal of Law and Economics.

[10]  D. Austin,et al.  An Event-Study Approach to Measuring Innovative Output: The Case of Biotechnology , 1993 .

[11]  Measuring market response to regulation of the cable TV industry , 1993 .

[12]  W. Primeaux,et al.  Determinants of regulatory policies toward competition in the electric utility industry , 1982 .

[13]  David Thompson,et al.  Privatisation and Regulation , 1986 .

[14]  John Vickers,et al.  Privatization: An Economic Analysis , 1988 .

[15]  J. Ries.  Windfall profits and vertical relationships: Who gained in the Japanese auto industry from VERs? , 1993 .

[16]  S. Peltzman.  Toward a More General Theory of Regulation , 1976, The Journal of Law and Economics.

[17]  G. Schwert.  Using Financial Data to Measure Effects of Regulation , 1981, The Journal of Law and Economics.

[18]  Jerold B. Warner,et al.  MEASURING SECURITY PRICE PERFORMANCE , 1980 .

[19]  G. Stigler.  The Theory of Economic Regulation , 2021, The Political Economy.

[20]  H. Levy,et al.  Abnormal expected utility and event study abnormal returns , 1994 .

[21]  S. Littlechild,et al.  The Regulation of Privatized Monopolies in the United Kingdom , 1989 .

[22]  Seth Armitage,et al.  EVENT STUDY METHODS AND EVIDENCE ON THEIR PERFORMANCE , 1995 .

[23]  Jerold B. Warner,et al.  Using daily stock returns: The case of event studies , 1985 .

[24]  T. Mills,et al.  Misspecification of the market model: the implications for event studies , 1995 .

[25]  S. M. Tiniç,et al.  Anatomy of Initial Public Offerings of Common Stock , 1988 .